<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File No. 2-35669
SOUTHERN SECURITY LIFE INSURANCE COMPANY___________
(Exact name of Company as specified in its charter)
Florida___________ ______ 59-1231733_________
(State or other jurisdiction (Employer Identification Number)
of incorporation or organization)
755 Rinehart Road, Lake Mary, Florida_______32746__
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code:(407) 321-7113
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class ____Which Registered____
None _ None_________
Securities registered pursuant to Section 12(g) of the Act:
_ None______
(Title of Class)
Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Company
was required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. X Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10- K or any amendment to
this Form 10-K. X
State the aggregate market value of the voting stock held by nonaffiliates of
the Company: $3,989,366 as of March 31, 1996.
The number of shares of the Company outstanding as April 1, 1996 is as
follows:
Number Outstanding at
Title of Class April 1, 1996_____
Common Stock
Par value $1.00 per share 1,907,989
<PAGE>
PART I
Item 1. Business.
Southern Security Life Insurance Company ("the Company") is a legal reserve
life insurance company authorized to transact business in the states of Alabama,
Florida, Georgia, Hawaii, Illinois, Kentucky, Louisiana, Michigan, Missouri,
South Carolina, Tennessee and Texas. It was incorporated under Florida law in
1966 and was licensed and commenced business in 1969. The Company obtained
authorization in the state of Illinois in 1995 and will continue the process of
seeking authorization, directly or through acquisition, to transact business in
additional states during 1996. During 1995, approximately 42% of the premium
income of the Company was from business in force in its state of domicile. The
Company's only industry segment is the ordinary life, accident and health and
annuity business.
The Company at present writes primarily universal life policies with
various companion riders. In the past it has written various forms of ordinary
life insurance policies and annuity contracts. The Company's accident and health
insurance business has never been a significant portion of the Company's
business. It does not presently write industrial life or group life insurance
other than through its participation as a reinsurer in the Servicemen's Group
Life Insurance Program ("SGLI").
The Company introduced its first universal life product in 1986 and
currently has two principal universal life products in force. These universal
life products offer flexibility to the client as well as tax advantages, both
currently and upon the death of the insured. These products allow the Company to
better compete in the current market environment. In excess of 98% of the
premiums written by the Company in 1994 and 1995, were for the universal life
products.
1995 continued as a rebuilding year for Southern Security.
In late 1995 the Company began negotiations with, and in early 1996
recruited, a new marketing director to reestablish the Company's marketing. As a
result, the Company is introducing a new series of products designed for the
seniors market. This new series targets the needs of senior citizens especially
as they plan for their final expenses. A lead generation program has been
designed specifically to support this new market. New field sales
representatives are also being actively recruited for the product announcement
in April of 1996.
The Company is continuing to support its traditional universal life
marketing as well. To enhance this market the Company is establishing a lead
generation program which is being coupled with a recruiting program for new
sales agents to help rebuild the market. This will enhance the opportunities for
the Company to
2
<PAGE>
expand sales of its universal life products which are designed to provide an
insurance program as well as a savings vehicle through the cash values of the
policy.
The following table provides information (on a statutory basis) concerning
the amount and percentage of premium income resulting from the principal lines
of insurance written by the Company during the periods indicated:
<TABLE>
<CAPTION>
1995 1994 1993
Per- Per- Per-
Amount centage Amount centage Amount centage
<S> <C> <C> <C> <C> <C> <C>
Life
Insurance-
Ordinary
(1)(2) $10,220,659 93% $11,549,563 95% $13,438,780 94%
Individual
Annuities
(1) 195,473 2% 102,992 1% 221,184 2%
Life
Insurance-
Group
(SGLI) 518,597 5% 536,880 4% 586,989 4%
Other -
Accident &
Health 1,385 0% 1,628 0% 1,769 0%
$10,936,114 100% $12,191,063 100% $14,248,722 100%
</TABLE>
(1) A portion of each of the deposit term policies previously sold by
the Company represents ordinary life insurance and the balance
represents an individual annuity.
(2) The 1994 and 1995 premium income for life insurance-ordinary
are net of reductions of $2,512,000 and $2,105,768,
respectively, in ceded premium paid to all reinsurers,
including Mega Life.
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3
<PAGE>
The following table gives information [on a generally accepted accounting
principles basis] for the Company concerning operating ratios for the periods
indicated:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Total Net
Premiums $8,158,938 $9,299,789 $10,738,921
Benefit Costs:
Amount $4,061,096 $4,115,257 $4,720,478
Ratio to Net Premium
Income 49.8% 44.3% 44.0%
Acquisition Expenses:
Amount $3,069,742 $3,242,706 $5,216,871
Ratio to Net Premium
Income 37.6% 34.9% 48.6%
General Insurance Expenses:
Amount $2,825,280 $3,276,386 $2,904,921
Ratio to Net Premium
Income 34.6% 35.2% 27.1%
Income Before Income Taxes:
Amount $1,274,903 $1,543,979 $705,652
Ratio to Net Premium
Income 15.6% 16.6% 6.6%
Ratio to Total Income 11.4% 12.7% 5.3%
Ratio to Equity 8.6% 12.2% 5.8%
</TABLE>
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4
<PAGE>
The following table provides information about the Company concerning
changes in life insurance in force (shown in thousands -000 omitted) during the
periods indicated (exclusive of accidental death benefits):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Total life insurance in force
at beginning of period:
Ordinary Whole Life &
Endowment-Participating $583 $750 $977
Ordinary Whole Life &
Endowment-Non-Participating 1,459,149 1,603,358 1,654,210
Term 9,422 12,051 25,522
SGLI 531,502 564,828 383,201
Total $2,000,656 $2,180,987 $2,063,910
Additions (including re-
insurance assumed):
Ordinary Whole Life &
Endowment-Participating - 0 - - 0 - - 0 -
Ordinary Whole Life &
Endowment-Non-Participating 125,961 188,622 330,033
Term - 0 - - 0 - - 0 -
SGLI 8 9 195,248
Total $125,969 $188,631 $525,281
Terminations:
Death $2,204 $1,849 $2,441
Lapse and Expiry 89,868 114,372 171,598
Surrender 228,334 251,306 224,309
Other 463 1,435 9,856
Total $320,869 $368,962 $408,204
Life Insurance in force at
end of period:
Ordinary Whole Life &
Endowment-Participating $583 $583 $750
Ordinary Whole Life &
Endowment-Non-Participating 1,289,250 1,459,149 1,603,358
Term 8,371 9,422 12,051
SGLI 507,552 531,502 564,828
Total $1,805,756 $2,000,656 $2,180,987
Reinsurance Ceded (448,382) (502,185) (535,217)
Total after Reinsurance Ceded $1,357,374 $1,498,471 $1,645,770
Lapse Ratio (Reflecting termina-
tion by surrender and lapse;
ordinary life insurance only): 21.1% 21.5% 23.2%
</TABLE>
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<PAGE>
The Company invests and reinvests portions of its funds in securities which
are permitted investments under the laws of the State of Florida, and part of
its revenue is derived from this source. Generally, securities comprising
permitted investments include obligations of Federal, state and local
governments; corporate bonds and preferred and common stocks; real estate
mortgages and certain leases. The following table summarizes certain information
regarding the Company's investment activities:
<TABLE>
<CAPTION>
Mean Gross Net
Fiscal Investment Investment Investment Net
Year Assets (1) _Income(2) Income (3) Yield (4)
<S> <C> <C> <C> <C>
1995 $46,899,142 $ 3,225,630 $ 2,998,875 6.39%
1994 $46,573,901 $ 3,111,186 $ 2,750,771 5.91%
1993 $41,461,857 $ 2,941,439 $ 2,518,005 6.07%
</TABLE>
(1) Computed pursuant to valuations prescribed under generally
accepted accounting principles.
(2) Includes capital gains and net of capital losses.
(3) Net of investment expense and before income taxes or extra
ordinary terms.
(4) Computed on an annualized basis. Represents ratio of net
investment income to mean invested assets.
The Company continues its activities as a qualified lender under the
Federal Family Educational Loan Program. Through this program the Company makes
various types of student and parent loans available. All student loans made by
the Company are guaranteed by the Federal Government. As it has in the past, the
Company sells these student loans on a periodic basis to the Student Loan
Marketing Association ("SLMA") thereby keeping these funds liquid.
The Company presently sells its policies on a general agency basis through
a field force consisting of approximately 270 agents. All such agents are
licensed as agents of, and sell for, the Company and are independent contractors
who are paid exclusively on a commission basis for sales of the Company's
policies. Some of the Company's agents are part-time insurance agents. Most of
the Company's agents are associated with Insuradyne Corporation, a wholly-owned
subsidiary of the Company's parent, Consolidare Enterprises, Inc. See "Certain
Relationships and Related Transactions" in Part III of this Report.
The Company presently employs 37 persons, none of whom are covered under
any collective bargaining agreements. The Company feels it has good relations
with its employees.
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<PAGE>
Section 624.408 of the Florida Statutes requires a stock life insurance
company to maintain minimum surplus on a statutory basis at the greater of
$1,500,000 or four percent (4%) of total liabilities. The Company's required
statutory minimum surplus calculated in accordance with this section is
approximately $1,800,000. If the capital and surplus of the Company computed on
such basis should fall below that amount, then the Company's license to transact
insurance business in the State of Florida, the Company's most significant
market, could be revoked unless the deficiency is promptly corrected. As of
December 31, 1995, the Company had statutory capital and surplus of $8,770,411,
well in excess of the required minimum.
The Risk-Based Capital for Life and/or Health Insurers Model Act (the
"Model Act") was adopted by the National Association of Insurance Commissioners
(NAIC) in 1992. The main purpose of the Model Act is to provide a tool for
insurance regulators to evaluate the capital resources of insurers as related to
the specific risks which they have incurred and is used to determine whether
there is a need for possible corrective action. The Model Act or similar
regulations may have been or may be enacted by the various states.
The Model Act provides for four different levels of regulatory action, each
of which may be triggered if an insurer's Total Adjusted Capital is less than a
corresponding "level" of Risk-Based Capital ("RBC").
The "Company Action Level" is triggered if an insurer's Total Adjusted
Capital is less the 200% of its "Authorized Control Level RBC" (as defined
in the Model Act), or less than 250% of its Authorized Control Level RBC
and the insurer has a negative trend ("the Company Action Level"). At the
Company Action Level, the insurer must submit a comprehensive plan to the
regulatory authority of its state of domicile which discusses proposed
corrective actions to improve its capital position.
The "Regulatory Action Level" is triggered if an insurer's Total Adjusted
Capital is less than 150% of its Authorized Control Level RBC. At the
Regulatory Action Level, the regulatory authority will perform a special
examination of the insurer and issue an order specifying corrective actions
that must be followed.
The "Authorized Control Level" is triggered if an insurer's Total Adjusted
Capital is less than 100% of its Authorized Control Level RBC, and at that
level the regulatory authority is authorized (although not mandated) to
take regulatory control of the insurer.
The "Mandatory Control Level" is triggered if an insurer's Total Adjusted
Capital is less than 70% of its Authorized
7
<PAGE>
Control level RBC, and at that level the regulatory authority must take
regulatory control of the insurer. Regulatory control may lead to
rehabilitation or liquidation of an insurer.
Based on calculations using the NAIC formula as of December 31, 1995, the
Company was well in excess of all four of the control levels listed.
The industry in which the Company is engaged is highly competitive. There
are in excess of 850 life insurance companies licensed in Florida, where a
substantial amount of the Company's premium income is produced, and there are
comparable numbers of insurance companies licensed in Alabama, Georgia, Hawaii,
Illinois, Kentucky, Louisiana, Michigan, Missouri, South Carolina, Tennessee and
Texas. Many of the Company's competitors have been in business for longer
periods of time, have substantially greater financial resources, larger sales
organizations, and have broader diversification of risks. A large number of the
Company's competitors engage in business in many states and advertise nationally
while the Company conducts its business on a regional basis. The Company is not
a significant factor in the life insurance business in any state where the
Company does business.
The states of Alabama, Florida, Georgia, Hawaii, Illinois, Kentucky,
Louisiana, Michigan, Missouri, South Carolina, Tennessee and Texas require that
insurers secure and retain a license or a certificate of authority based on
compliance with established standards of solvency and demonstration of
managerial competence. The Company, like other life insurers, is subject to
extensive regulation and supervision by state insurance regulatory authorities.
Such regulation relates generally to such matters as minimum capitalization, the
nature of and limitations on investments, the licensing of insurers and their
agents, deposits of securities for the benefit and protection of policyholders,
the approval of policy forms and premium rates, periodic examination of the
affairs of insurance companies, the requirement of filing annual reports on a
specified form and the provision for various reserves and accounting standards.
The Company reinsures or places a portion of its insured risks with other
insurers. Reinsurance reduces the amount of risk retained on any particular
policy and, correspondingly, reduces the risk of loss to the Company, thus
giving it greater financial stability. Reinsurance also enables the Company to
write more policies and policies in larger amounts than it would otherwise
consider prudent. On the other hand, reinsurance potentially reduces earnings,
since a portion of the premiums received must be paid to the insurers assuming
the reinsured portion of the risk.
The Company currently cedes its new reinsurance to Businessmen's Assurance
Company ("BMA") and the Reinsurance Company
8
<PAGE>
of Hanover, both of which are unaffiliated reinsurers. Under the terms of the
reinsurance agreements, the Company cedes all risks in excess of the Company's
current retention limits.
The Company currently retains a maximum of $75,000 on any one life and
lesser amounts on substandard risks.
Reinsurance for policy amounts in excess of the Company's retention limits
is ceded on a renewable term basis, under which the amount reinsured normally
decreases annually by the amount of increase in the policy reserve. In addition,
the Company has coinsurance agreements with several insurers, under which
premiums are shared based upon the share of the risk assumed.
The Company remains directly liable to policyholders for the full amount of
all insurance directly written by it, even though all or a portion of the risk
is reinsured. Reinsurers, however, are obligated to reimburse the Company for
the reinsured portion of any claims paid. Consequently, if any reinsurer becomes
insolvent or is otherwise unable to make such reimbursement, the Company would
suffer an unexpected loss. The Company has no reason to believe that any of its
reinsurers will be unable to perform their obligations under existing
reinsurance agreements.
On December 31, 1992, the Company entered into a Coinsurance Reinsurance
Agreement with United Group Insurance Company ("UGIC"), now Mega Life. In this
agreement, UGIC agreed to indemnify and the Company agreed to transfer risk to
UGIC in the amount of 18% of all universal life premium paying polices which
were in force on December 31, 1992. Mega Life is an A rated company with A.M.
Best and is an authorized reinsurer in the State of Florida.
As a result of the 1992 agreement, the Company will continue to pay
reinsurance premiums to Mega Life while receiving ceding commissions. As a part
of the coinsurance agreement, Mega Life agreed to share in the expenses of death
claims, surrenders, commissions, taxes and the funding of policy loans.
Under the terms of the agreement, Mega Life maintains a trust account with
Sun Trust, a bank located in Orlando, Florida, which names the Company as the
beneficiary. The trust is to remain in effect with deposits made by Mega Life on
a periodic basis to maintain assets having a market value at least equal to 18%
of the Company's ceded reserves, net of policy loans, on a statutory basis.
The Company does not assume any reinsurance at the present time other than
its participation in SGLI.
The Company is required to establish policy benefit and other reserves
which are calculated in accordance with statutory requirements and standards of
actuarial practice and established at
9
<PAGE>
amounts which, with additions from premiums to be received and assumed interest
on policy reserves compounded annually, are believed to be sufficient to meet
policy obligations as they mature. Life reserves for the Company are based upon
the Commissioner's 1958 and 1980 Standard Ordinary Table of Mortality, with
interest on policies computed at 3, 3-1/2, 4 or 4-1/2%. Annuity reserves are
based on the 1937 Standard Annuity Table, with interest on policies computed at
3-1/2 or 4%. Reserves on the annuity portion of the Company's deposit term
policies are computed on the accumulation method. Reserves for universal life
policies, which comprise most of the Company's insurance in force, have been
valued by the California Method which was approved by the Florida Department of
Insurance. Reserves under this method are the linear average of the policy
account value and the policy cash surrender value (account value less the
surrender charge).
In 1994, the Florida Department of Insurance issued a new regulation that
required all companies who are not already using the CRVM method to phase into
that method over a period of five years. As required, the Company has filed with
the Department its plan to comply with the new regulation and implemented the
plan beginning January 1, 1995. This has resolved the pending discussions with
the Florida Insurance Department on the Company's reserving methods. The CRVM
reserving method applies only to the Company's statutory financial statements.
For the year 1995 the increase in the statutory reserve due to the
implementation of this regulation was approximately $404,000.
Estimation and provision for the cost of HIV-related claims covered under
life and accident and health insurance policies of the Company have been made.
The Company utilizes the services of KPMG Peat Marwick, LLP, consulting
actuaries, in calculating such reserves.
In preparing generally accepted accounting principle Financial Statements,
the cost of insurance and expense charges on universal life products are
recognized as revenue. For "Annuity Contracts" with flexible terms, amounts
received from policyholders are not recognized as revenue but are recorded as
deposits in a manner similar to interest-bearing instruments. Accumulations on
these universal life and annuity contracts are held as "Policyholders' Account
Balances." For all other policies (primarily whole-life) revenue and reserves
are calculated using the net level premium method. Accumulation values for these
types of policies are held as benefit reserves. See "Future Policy Benefits" in
Note 1 of the Notes to Financial Statements included in this report.
The Company maintains its own policy files, prepares its own policy forms
(with the assistance of its consulting actuaries), selects risks, calculates
premiums, prepares premium notices, preauthorized checks and commission
statements, and maintains all of its accounting records.
10
<PAGE>
The Company is not affected by Federal, state or local provisions relating
to discharge of materials into the environment. The Company has not spent a
material amount of money during the last three fiscal years on research and
development activities. The business of the Company is not seasonal in nature
and is not dependent on the sources and availability of raw materials. The
business of the Company is not dependent upon a single customer or a few
customers, and no material portion of the Company's business is subject to
renegotiation of profits or termination at the election of the Government.
Item 2. Properties.
The Company's corporate headquarters is located in a two story office
building in Lake Mary, Florida which is owned by the Company. The Company
occupies the entire second floor of the building. Of the remaining rentable
space, 8,467 square feet were leased at year end and the remaining balance of
1,200 square feet was available for lease. Since year end, the Company has
contracted to lease the remaining leasable space.
Item 3. Pending Legal Proceedings.
Lawsuits against the Company may have arisen in the course of the Company's
business. However, contingent liabilities arising from litigation and other
matters are not considered material in relation to the financial position of the
Company.
To the best of the Company's knowledge, it has no potential or pending
contingent liabilities that might be material to the Company's financial
condition, results of operations or liquidity, pursuant to product and
environmental liabilities. The Company maintains insurance coverage for
unforeseen events and the insurance carriers, to the best of managements
knowledge, have no solvency issues.
Item 4. Submission of Matters to a Vote of Security Holders.
During the fourth quarter of the Company's fiscal year, no matter was
submitted to a vote of security holders.
11
<PAGE>
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters.
(a) Principal Market and Stock Price. The principal market on which the
Company's common stock is traded is the over-the-counter market. Trading
information with respect to the Company's shares is available through the
National Association of Securities Dealers Automated Quotation (NASDAQ) System
under the symbol SSLI.
The table below presents the high and low market prices for the Company's
common stock during the calendar quarters indicated, as quoted in the NASDAQ
system. The quotations represent prices between dealers in securities and do not
include retail markups, markdowns or commissions and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
QUARTER ENDED
____________________________________________________________________________
1995 1994
____________________________________________________________________________
Mar.31 Jun.30 Sep.30 Dec.31 Mar.31 Jun.30 Sep.30 Dec.31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common
Shares:
High 5 7/8 5 3/8 5 3/8 5 3/8 6 1/8 6 6 6
Low 4 5/8 4 7/8 5 4 7/8 5 3/8 5 1/2 5 5/8 5 1/2
</TABLE>
(b) Approximate Number of Holders of Common Stock. There were 1,777 holders
of record of the Company's Common Stock at December 31, 1995.
(c) Dividends. The Company has paid no cash dividends to stockholders
during the past two years, and it is not anticipated that any cash dividends
will be paid at any time in the foreseeable future. The payment of dividends by
the Company is subject to the regulation of the State of Florida Department of
Insurance. Under such regulation an insurance company may pay dividends, without
prior approval of the State of Florida Department of Insurance, equal to or less
than the greater of (a) 10% of its accumulated capital gains (losses) (i.e.
unassigned surplus) or (b) certain net operating profits and realized net
capital gains of the Company, as defined in the applicable insurance statutes.
In no case can such dividends be paid if the Company will have less than 115% of
the minimum required statutory surplus as to policyholders after the dividend is
paid. The maximum amount which the Company could pay as a dividend during 1996
pursuant to such regulation is $232,181.
Item 6. Selected Financial Data.
The following table presents selected financial data (on a GAAP basis)
concerning the Company and its financial results during the periods indicated.
12
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenues:
Life insurance
premiums $8,158,938 $9,299,789 $10,738,921 $9,512,468 $8,068,917
Net investment
income $2,988,875 2,750,771 2,518,005 2,445,460 2,378,727
Realized Gain
(Loss)on
Investments 60,237 60,732 138,985 169,955 54,047
Gain on
Reinsurance
Transaction 639,455
----------- ----------- ----------- ----------- -----------
Total Revenue $11,218,050 $12,111,292 $13,395,911 $12,767,338 $10,501,691
Benefits, Losses
& Expenses:
Insurance
living
benefits $2,636,851 $2,815,194 $2,848,888 $2,934,734 $2,906,333
Insurance death
benefits 1,424,245 1,300,063 1,871,590 1,562,431 1,414,191
Increase (decrease)
in
policy
reserves (12,971) (67,036) (152,011) (246,642) (357,220)
Amortization of
deferred policy
acquisition
costs 3,069,742 3,242,706 5,216,871 4,411,788 3,992,725
Commissions and
General
Expenses 2,735,280 3,186,386 2,814,921 2,292,977 2,025,264
Interest expense
with related
party 90,000 90,000 90,000 91,250 108,695
---------- ----------- ----------- ----------- -----------
Total Expenses: $9,943,147 $10,567,313 $12,690,259 $11,046,538 $10,089,988
---------- ----------- ----------- ----------- -----------
Income before
Income Taxes $1,274,903 $1,543,979 $705,652 $1,720,800 $411,703
---------- ----------- ----------- ----------- -----------
Income taxes $160,000 $530,000 $1,000 $(49,400) $65,800
---------- ----------- ----------- ----------- -----------
Cumulative Effect
of Adoption of
Statement 109 $ $ $ $ $174,000
NET INCOME $1,114,903 $1,013,979 $704,652 $1,770,200 $171,903
========== ========== ======== ========== ========
Weighted average
number of
shares
outstanding 1,907,989 1,907,989 1,844,694 1,844,694 1,844,694
---------- ----------- ----------- ----------- -----------
Net income per
common
share .58 $.53 $.38 $.96 $.09
---------- ----------- ----------- ----------- -----------
Shareholders'
Equity $14,826,610 $12,644,525 $12,238,101 $11,352,540 $9,580,205
---------- ----------- ----------- ----------- -----------
Shareholders'
equity per
common
share $7.77 $6.63 $6.63 $6.15 $5.19
---------- ----------- ----------- ----------- -----------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Assets $81,872,350 $77,185,070 $81,211,540 $64,431,214 $57,003,356
Life Insurance:
Insurance in
force $1,805,756,000 $2,000,656,000 $2,180,987,000 $2,063,910,000 $1,923,252,000
Individual
insurance
issued during
current
year $124,222,000 $184,364,000 $325,869,000 $556,570,000 $741,646,000
Long term
obligation $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000
Dividends
declared per
common share $0.00 $0.00 $0.00 $0.00 $0.00
</TABLE>
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14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Overview.
This analysis of the results of operations and financial condition of
Southern Security Life should be read in conjunction with the Selected Financial
Data and Financial Statements and Notes to the Financial Statements included in
this report.
In recent years the Company has primarily issued one type of insurance
product, universal life. Universal life provides insurance coverage with
flexible premiums, within limits, which allow policyholders to accumulate cash
values. These accumulated cash values are credited with tax-deferred interest,
as adjusted by the Company on a periodic basis. Deducted from these cash
accumulations are administrative charges and mortality costs. Should a policy
surrender in its early years, the Company assesses a surrender fee against these
same cash accumulations, based on issue age of the insured, smoker verses
non-smoker status, sex of the insured and the duration of the policy at the time
of surrender.
Pursuant to the accounting methods prescribed by Financial Accounting
Standards No. 97 (FAS 97), premiums received from policyholders on universal
life products are credited to policy- holder account balances, a liability,
rather than income. Revenues, described herein as premium, on such products
result from the mortality and administrative fees charged to policyholder
balances in addition to surrender charges assessed at the time of surrender as
explained above. Such costs of insurance, expense charges, and surrender fees
are recognized as revenue as earned. In addition, the Company has adopted policy
designs with the characteristic of having higher expense charges during the
first policy year than in renewal years. Under FAS 97, the excess of these
charges are reported as unearned revenue. The unearned revenue is then amortized
into income over the life of the policy using the same assumptions and factors
used to amortize capitalized acquisition costs. Interest credited to
policyholder balances is shown as a part of benefit expenses.
In accordance with generally accepted accounting principles, certain costs
directly associated with the issuance of new policies are deferred and amortized
over the lives of the policies. These costs are defined as deferred policy
acquisition costs and are shown in the asset section of the balance sheet of the
Company. Capitalized acquisition costs are amortized over the life of the
business at a constant rate, based on the present value of the estimated gross
profits expected to be realized over the life of the business. FAS 97 requires
that estimates of expected gross profits used as a basis for amortization be
evaluated on a regular basis, and the total amortization to date be adjusted as
a charge or credit to earnings if actual experience or other evidence
15
<PAGE>
suggests that earlier estimates be revised. Thus, variations in the amortization
of the deferred policy acquisition costs, from one period to the next, are a
normal aspect of universal life insurance business and are generally attributed
to the recognition of current and emerging experience in accordance with the
principles of FAS 97.
Annuity products, of which the Company currently has a minor amount, are
recorded in similar fashion to universal life products. Considerations received
by the Company are credited to the annuity account balances which are shown as a
liability in the balance sheet. Interest is credited to these accounts as well
and shown as an expense of the Company. Income is derived primarily from
surrender charges on this type product.
An additional source of income to the Company is investment revenue. The
Company invests those funds deposited by policy- holders of universal life and
annuity products in debt and equity securities in order to earn interest and
dividend income, a portion of which is credited back to the policyholders.
Interest rates and maturities of the Company's investment portfolio play a part
in determining the interest rates credited to policyholders.
Product profitability is affected by several different factors, such as
mortality experience ( actual versus expected), interest rate spreads (excess
interest earned over interest credited to policyholders) and controlling policy
acquisition costs and other costs of operation. The results of any one reporting
period may be significantly affected by the level of death claims or other
policyholder benefits incurred due to the Company's relatively small size.
(The remainder of this page is intentionally left blank)
16
<PAGE>
The following table sets forth certain percentages reflecting financial
data and results of operations (a) for 1995, 1994 and 1993 premium and
investment revenues and (b) for period to period increases and (decreases).
<TABLE>
<CAPTION>
Relationships to
Total Revenues Period to Period
Years Ended December 31 (Increase or Decrease)
1995 1994 1993 95-94 94-93
<S> <C> <C> <C> <C> <C>
Premium Income 73% 77% 80% (12%) (13%)
Net Investment Income 27 23 20 9% 5%
Other Income
Total Revenues 100% 100% 100% (7%) (10%)
Losses, claims and
loss adjustment
expenses 36% 33% 34% (0%) (11%)
Acquisition costs 27 27 40 5% (38%)
Other operating
costs and
expenses 26 27 21 (14%) (13%)
Total Expenses 89% 87% 95% (4%) (17%)
Income before income
taxes 11% 13% 5% (17%) 119%
Provision for
taxes 1 5 .07 (70%) 589%
Net Income 10% 8% 5% 10% 44%
</TABLE>
Results of Operations.
New business written was 124, 189 and 330 million dollars in face value for
1995, 1994 and 1993, respectively. New business written declined again in 1995,
as it did in 1994, as the Company continued its efforts to license new products
and develop marketing distribution channels. Delays in obtaining admission of
new products into various states has cost the Company anticipated sales as well
as agency forces over the past two years. Yet, by year end 1995, some key
marketing strategies were accomplished which have already begun to show a
positive impact on 1996 production figures. One such marketing strategy included
the hiring of a new marketing director. The new director, a seasoned insurance
executive, brings to the Company a product expertise and market expansion
knowledge that will enable the Company to accomplish its long term goals.
Another key development was the creation of a lead generation program designed
to provide new business leads in order to increase production.
17
<PAGE>
Premium income for 1995 was recorded at $9.4 million, for 1994 at $10.6
million and for 1993 at $12.3 million. This 1995 decline of 12% in premium
income can be attributed somewhat to the decline in the Company's insurance in
force and therefore an associated reduction in administrative and mortality
fees. Surrender fees, another component of premium income, decreased by
approximately 5% from 1994 due to the fact that the book of business is aging
and as it does so, surrender fees decrease. 1994 in comparison with 1995 is much
the same scenario as 1994 versus 1995, however surrender fees were greater. The
new business decline of the past several years is having an impact on premium
income. The balance of the decline in premium income for 1994 and 1995 is
attributable to the amortization and unlocking for current and future experience
of unearned premium into income. Unearned premium essentially represents the
excess first year charges in the policy. With the advice and assistance of our
consulting actuaries, each year the Company reviews its current experience rates
for mortality, credited interest rates, lapse rates, surrender fees and the
like, and adjusts its amortization of deferred acquisition costs and unearned
premium to the appropriate levels for both the current experience and
anticipated future experience. This is an on-going refinement process.
Increased investment in debt securities coupled with reduced expenses for
student loan processing accounted for the 9% increase in investment income for
the year 1995. The Company's investment in student loans is declining each year
in response to increased costs designated by the government. This trend is
expected to continue and show significant change in 1996.
Annuity, death and other benefits decreased only slightly in 1995 from the
results of 1994. Death claims continued their trend of less than anticipated by
the actuarial assumptions but were up slightly from 1994, however, well below
the 1993 figures. A significant increase or decrease in death claims in any
given year can have a marked impact on the results of operations in a small
company. Surrender benefits were responsible for the slight improvement in this
expense area. While death claims were up slightly, surrender benefits declined
enough to compensate for the increase.
The amount of the amortization of deferred acquisition costs continued its
1994 trend, declining by approximately 5%. The amortization of deferred
acquisition costs is a continuous refinement process which relates to current
experience in connection with revenues, mortality gains and losses, credited
interest rate spreads, expense charges and surrender charges. The change in the
rate of amortization of both deferred acquisition costs and unearned premium
liabilities is due to "unlocking" for current and future experience based on the
results of the changing experience encountered as required under FAS 97.
18
<PAGE>
Operating expenses for the Company were $2.7 million. $3.2 million and $2.8
million for 1995, 1994 and 1993, respectively. In 1994, the Company settled
litigation with a former employee and experienced the related costs of legal
representation. After due consideration of the litigation delays the Company
might encounter on the collection of these expenses from its insurers, the costs
of settlement and associated legal expenses, estimated at between $500,000 and
$600,000, were expensed in that same year. While the Company reasonably expects
to receive reimbursement through its insurance carriers for a substantial
portion of these expenses, estimated at $500,000, it has prudently established a
receivable for only $100,000 due to litigation delays in receiving said funds.
These expenses account for the 14% decrease in current year operating expenses
in comparison with those of 1994. It can also be noted that the expenses have
returned to their previous level of 1993.
Reinsurance premiums ceded for 1995 and 1994 were $2,112,884 and
$2,508,749, respectively. Policy benefits were reduced due to reinsurance
$405,345 and $679,622 for 1995 and 1994 respectively. Reinsurance commissions
amounted to $397,253 for 1995 and $445,309 for 1994. In addition, under the
terms of the Company's treaty with Mega Life (formerly United Group Insurance
Company) expenses of $911,452 were transferred to the reinsurer for 1995 and
$1,163,842 for 1994. The Company has also amortized the remaining $200,000 of
deferred gain, under the aforementioned treaty, against deferred acquisition
costs for 1995 (see Note 7).
Income, before income taxes, in 1995 was $1,274,903 compared to $1,543,979
in 1994 and $705,652 in 1993. The 1995 income declined 17% from prior year as a
result of reduced premium income and level amortization expenses. 1993 income
suffered from higher death benefit expenses than the following two years.
Liquidity and Capital Resources.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments
in Debt and Equity Securities." SFAS 115 required that investments in all debt
securities and those equity securities with readily determinable market values
be classified into one of three categories: held-to-maturity, trading or
available-for-sale. Classification of investments is based upon management's
current intent. Debt securities which management has a positive intent and
ability to hold until maturity are classified as securities held-to-maturity and
are carried at amortized cost. Unrealized holding gains and losses on securities
held-to-maturity, are not reflected in the financial statements. Debt and equity
securities that are purchased for short-term resale are classified as trading
securities. Trading securities are carried at market value, with unrealized
holding gains and losses included in earnings. All other debt and equity
securities not included in the
19
<PAGE>
above two categories are classified as securities available-for-sale.
Securities available-for-sale are carried at market value, with unrealized
holding gains and losses reported as a separate component of stockholders'
equity, net of tax and a valuation allowance against deferred acquisition costs.
Adoption of this statement had no effect on the income of the Company.
The Company's insurance operations have historically provided adequate
positive cash flow enabling the Company to continue to meet operational needs as
well as increase its investment-grade securities to provide ample protection for
policyholders.
Student loans are a service the Company makes available to the public as
well as an investment. While the Company anticipates the seasonal demand for
student loan funds and the subsequent sale of such loans to the Student Loan
Marketing Association (SLMA), there are times when additional funds are required
to meet demand for student loans until such time as the sale thereof to SLMA can
be completed. In 1995 the Company renewed its $15,000,000 line of credit with
SLMA in order to meet these seasonal borrowing requirements. The Company made
several draws against this line of credit throughout the seasonal period. The
Company anticipates continued borrowings to be made through this line of credit
with SLMA to the extent that student loan borrowings are required for 1996. SLMA
offers a more competitive rate of interest on such borrowings than the Company
has been able to obtain through banks.
The following table displays pertinent information regarding the short-term
borrowings of the Company as they relate to these credit lines:
<TABLE>
<CAPTION>
1995 1994 1993 1993
SLMA SLMA SUN TRUST SLMA
<S> <C> <C> <C> <C>
Balance
@ Year
End $1,400,553.30 $891,823.47 - 0 - $9,438,067.96
Weighted
Avg.
Interest
@ Year
End 6.3705% 6.566% - 0 - 3.975%
Maximum
Balance $1,891,823.47 $3,823,957.61 $1,910,000.00 $9,438,067.96
Average
Balance $1,159,300.15 $1,443,478.84 $1,276,666.67 $4,516,551.99
Weighted
Rate 6.3705% 6.1024% 6.0000% 3.95881%
</TABLE>
20
<PAGE>
The Company continued its association with University Support Services
throughout 1995, for the purpose of making more student loan funds available
without increased costs to the Company. This association aided in keeping
borrowings to a minimum for 1995. The Company is currently in negotiations with
another firm that would accomplish this same benefit to a greater extent.
Except as otherwise provided herein, management believes that cash flow
levels in future periods will be such that the Company will be able to continue
its prior growth patterns in writing life insurance policies, fund Federally
insured student loans and meet normal operating expenses.
The National Association of Insurance Commissioners, in order to enhance
the regulation of insurer solvency, issued a model law to implement risk-based
capital (RBC) requirements for life insurance companies, which are designed to
assess capital adequacy. Pursuant to the model law, insurers having less
statutory surplus than required by the RBC calculation will be subject to
varying degrees of regulatory action. While Florida, the Company's state of
domicile, had yet to adopt the provisions of the RBC model law, the Company is
monitoring their RBC results in anticipation of future adoption. At December 31,
1995, the Company had statutory surplus well in excess of any RBC action level
requirements.
The Company recently executed a lease with a new tenant for the remaining
1200 square foot of rentable space on the first floor of the office building.
The contract includes the build-out of the space to serve as office space. The
Company has agreed to cover expenditures of the build-out and the lessee has
agreed to rent the space for a five year period. The build-out is estimated to
have a cost of $16,000. The Company, at this time, has no other material
commitments for capital expenditures through the balance of this year.
Item 8. Financial Statements and Supplementary Data.
(The remainder of this page is intentionally left blank)
21
<PAGE>
Independent Auditors' Report
-----------------------
Board of Directors
Southern Security Life Insurance Company:
We have audited the accompanying financial statements of Southern Security Life
Insurance Company as listed in the accompanying index under item 14(a). In
connection with our audit of the financial statements, we have also audited the
amounts included in the financial statement schedules as listed in the
accompanying index under Item 14(a)2. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southern Security Life
Insurance Company as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three year period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As discussed in note 1(c) to the financial statements, the Company adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," in 1994.
/S/KPMG Peat Marwick LLP
Orlando, Florida
March 26, 1996
22
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
----- ---- ----
<S> <C> <C>
Investments (note 3):
Fixed maturities held to maturity (fair value,
$15,494,540 and $12,474,924 at December 31, 1995
and 1994, respectively) $ 15,165,395 12,816,337
Securities available for sale, at fair value:
Fixed maturities (cost of $21,077,410 at December 31,
1995 and $20,015,825 at December 31, 1994) 21,812,096 18,641,197
Equity securities (cost, $1,297,041 and $1,369,028 at
December 31, 1995 and 1994, respectively) 1,715,386 1,380,761
Policy and student loans 9,971,653 8,866,968
Short-term investments 1,499,100 1,875,758
Other invested assets 22,578 31,054
-------- --------
50,186,208 43,612,075
Cash and cash equivalents 406,752 638,079
Accrued investment income 638,809 604,851
Deferred policy acquisition costs (note 4) 18,145,111 20,104,624
Policyholders' account balances on deposit with reinsurer
(note 7) 8,440,660 8,098,655
Reinsurance receivable (note 7) 514,341 323,184
Due from affiliated insurance agency (note 11) - 10,419
Receivables:
Agent balances 345,014 521,076
Other 318,274 333,721
Refundable income taxes - 114,216
Property and equipment, net, at cost (note 5) 2,877,181 2,824,170
-------- --------
$ 81,872,350 77,185,070
======== ========
</TABLE>
See accompanying notes to financial statements.
23
<PAGE>
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity 1995 1994
----------------------------- ---- ----
<S> <C> <C>
Liabilities:
Policy liabilities and accruals (notes 6 and 7):
Future policy benefits $ 1,050,498 1,041,645
Policyholders' account balances 50,624,276 47,618,490
Unearned premiums 9,116,890 10,416,064
Other policy claims and benefits payable 191,955 297,376
Other policyholders' funds, dividend and
endowment accumulations 57,444 55,375
Funds held in reinsurance treaties with
reinsurers (note 7) 977,416 700,701
Note payable (note 8) 1,400,553 891,823
Note payable to related party (note 9) 1,000,000 1,000,000
Due to affiliated insurance agency (note 11) 243,368 225,213
Other liabilities 1,461,990 1,819,858
Income taxes payable 16,350 -
Deferred income taxes (note 10) 905,000 474,000
-------- --------
67,045,740 64,540,545
-------- --------
Shareholders' equity (notes 2, 3 and 12):
Common stock, $1 par, authorized 2,000,000 shares;
issued and outstanding, 1,907,989 shares 1,907,989 1,907,989
Capital in excess of par 4,011,519 4,011,519
Outstanding agents' incentive stock bonus (note 12) - -
Unrealized appreciation (depreciation) on securities
available for sale, net of adjustment to deferred policy
acquisition costs of $273,077 ($(524,868) in 1994) and
net of deferred federal income tax expense of $331,307
($319,492 benefit in 1994) 548,647 (518,535)
Retained earnings 8,358,455 7,243,552
-------- --------
14,826,610 12,644,525
Commitments and contingencies (notes 7 and 14)
-------- --------
$ 81,872,350 77,185,070
======== ========
</TABLE>
24
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Statements of Income
Years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Premium income and policy fees $ 9,360,370 10,644,696 12,268,306
Less reinsurance ceded 1,201,432 1,344,907 1,529,385
-------- -------- --------
Net premium income 8,158,938 9,299,789 10,738,921
Net investment income (notes 3 and 8) 2,998,875 2,750,771 2,518,005
Realized gain on investments (note 3) 60,237 60,732 138,985
-------- -------- --------
11,218,050 12,111,292 13,395,911
-------- -------- --------
Benefits, losses and expenses:
Annuity, death, surrender and other
benefits 4,061,096 4,115,257 4,720,478
Decrease in future policy benefits (12,971) (67,036) (152,011)
Amortization of deferred policy acquisition
costs (note 4) 3,069,742 3,242,706 5,216,871
Operating expenses (note 11) 2,735,280 3,186,386 2,814,921
Interest expense with related party (note 9) 90,000 90,000 90,000
-------- -------- --------
9,943,147 10,567,313 12,690,259
-------- -------- --------
Income before income taxes 1,274,903 1,543,979 705,652
Income tax expense (benefit) (note 10) 160,000 530,000 1,000
-------- -------- --------
Net income $ 1,114,903 1,013,979 704,652
======== ======== ========
Earnings per share, based on 1,907,989
weighted average shares outstanding in
1995 and 1994 and 1,844,694 weighted
average shares outstanding in 1993 $ .58 .53 .38
======== ======== ========
See accompanying notes to financial statements.
</TABLE>
25
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Statements of Shareholders' Equity
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Unrealized
appreciation
(depreciation) Agents
Capital of equity incentive
Common stock in excess security stock Retained
Shares Amount of par investments bonus earnings
---- ----- ------ --------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1992 1,844,694 $ 1,844,694 3,918,292 64,633 - 5,524,921
Net income for the year - - - - 704,652
Stock bonus - - - - 125,000 -
Unrealized appreciation
of equity security
investments - - - 55,909 - -
------ ------ ------ ------ ----- ------
Balances, December 31,
1993 1,844,694 1,844,694 3,918,292 120,542 125,000 6,229,573
Capital stock issued 63,295 63,295 93,227 - (125,000) -
Net income for the year - - - - - 1,013,979
Unrealized depreciation of
securities available for
sale - - - (639,077) - -
------ ------ ------ ------ ----- ------
Balances, December 31,
1994 1,907,989 1,907,989 4,011,519 (518,535) - 7,243,552
Net income for the year - - - - - 1,114,903
Unrealized appreciation of
securities available for
sale - - - 1,067,182 - -
------ ------ ------ ------ ----- ------
Balances, December 31,
1995 1,907,989 $ 1,907,989 4,011,519 548,647 - 8,358,455
======= ======= ======= ======= ====== =======
See accompanying notes to financial statements.
</TABLE>
26
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (including net realized gains and
losses on investments) $ 1,114,903 1,013,979 704,652
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 182,971 190,288 163,400
Net realized (gains) losses on investments (60,237) (60,732) (138,985)
Loss on disposal of property, plant and
equipment 918 5,326 -
Deferred income taxes (221,000) 430,000 (142,000)
Amortization of deferred policy
acquisition costs 3,069,742 3,242,706 5,216,871
Acquisition costs deferred (2,779,393) (3,967,255) (5,369,672)
Change in assets and liabilities affecting
cash provided by operations:
Accrued investment income (33,958) 842,643 (499,047)
Due from affiliated insurance agency 10,419 (50) 87
Accounts receivable 305,725 324,561 426,498
Reinsurance receivable (191,157) (11,835) 29,507
Other policy claims and future
benefits payable (96,568) (403,263) 98,298
Policyholders' account balances 2,388,047 2,325,599 2,427,238
Funds held under reinsurance 276,715 202,827 497,874
Unearned premiums (427,955) (525,609) (771,991)
Dividend and endowment
accumulations 2,069 838 (12,080)
Payable to affiliated insurance agent 18,155 (123,959) 248,629
Income taxes payable 16,350 - (496,698)
Other liabilities (361,184) (800,006) 845,651
-------- -------- --------
Net cash provided by operating activities 3,214,562 2,686,058 3,228,232
-------- -------- --------
(Continued)
</TABLE>
27
<PAGE>
2
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from (used in) investing activities:
Purchase of investments - - (9,916,314)
Purchase of investments held to maturity (3,492,860) (6,471,251) -
Purchase of investments available for sale (3,754,242) (8,599,060) -
Proceeds from maturity of held to maturity
securities 1,135,203 1,955,675 906,996
Proceeds from maturity of available for sale
securities 141,150 2,508,813 1,374,729
Proceeds from sale of available for sale
securities (equity and fixed maturity) 2,664,089 650,294 2,491,905
Net change in short-term investments 376,658 (1,247,532) -
Net change in policy and student loans (1,104,685) 15,693,088 (10,810,164)
Net change in other investments 8,476 - -
Acquisition of property and equipment (204,142) (41,787) (41,945)
-------- -------- --------
Net cash provided by (used in)
investing activities (4,230,353) 4,448,240 (15,994,793)
-------- -------- --------
Cash flows from financing activities:
Receipts from universal life and certain
annuity policies credited to policyholder
account balances 5,609,910 6,103,433 6,826,310
Return of policyholder account balances on
universal life and certain annuity policies (5,334,176) (4,142,868) (4,138,699)
Proceeds from short-term borrowings 3,250,000 8,462,932 14,410,000
Repayment of short-term borrowings (2,741,270) (17,009,177) (4,971,932)
-------- -------- --------
Net cash provided by (used in)
financing activities 784,464 (6,585,680) 12,125,679
-------- -------- --------
Net increase (decrease) in cash (231,327) 548,618 (640,882)
Cash and cash equivalents at beginning of year 638,079 89,461 730,343
-------- -------- --------
Cash and cash equivalents at end of year $ 406,752 638,079 89,461
======== ======== ========
Supplemental schedule of cash flow information:
Interest paid during the year, net $ 24,935 164,790 126,190
======== ======== ========
Income taxes paid during the year $ 249,000 145,000 762,475
======== ======== ========
See accompanying notes to financial statements.
</TABLE>
28
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
December 31, 1995, 1994 and 1993
(1) Nature of Business and Summary of Significant Accounting Policies
------------------------------------------------------
(a) Nature of Business
---------------
The primary business purpose of Southern Security Life Insurance
Company (the "Company") is the issuance of long duration
universal life insurance contracts. Prior to 1986, the Company's
business included traditional whole life and annuity contracts.
The majority of the Company's business is conducted in the states
of Florida (50%), Georgia (15%) and Texas (11%). None of the
remaining eight states in which the Company is licensed to
conduct business account for over 10% of the Company's total
business.
The following is a description of the most significant risks
facing life and health insurers and how the Company mitigates
those risks:
Legal/Regulatory Risk is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives designed to reduce
insurer profits, new legal theories or insurance company
insolvencies through guaranty fund assessments may create costs
for the insurer beyond those recorded in the consolidated
financial statements. The Company seeks to mitigate this risk
through geographic marketing of their insurance products.
Credit Risk is the risk that issuers of securities owned by the
Company will default or that other parties, including reinsurers,
which owe the Company money, will not pay. The Company minimizes
this risk by adhering to a conservative investment strategy, by
maintaining sound reinsurance and by providing for any amounts
deemed uncollectible.
Interest Rate Risk is the risk that interest rates will change
and cause a decrease in the value of an insurer's investments.
This change in rates may cause certain interest-sensitive
products to become uncompetitive or may cause disintermediation.
The Company mitigates this risk by charging fees for
nonconformance with certain policy provisions, by offering
products that transfer this risk to the purchaser, and/or by
attempting to match the maturity schedule of its assets with the
expected payouts of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer
would have to sell assets prior to maturity and potentially
recognize a gain or loss.
(b) Basis of Financial Statements
-----------------------
The financial statements have been prepared on the basis of
generally accepted accounting principles ("GAAP"), which vary
from reporting practices prescribed or permitted by regulatory
authorities.
(Continued)
29
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(1), Continued
(c) Use of Estimates
-------------
In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts
of assets and liabilities. Actual results could differ
significantly from those estimates.
The estimates susceptible to significant change are those used in
determining the liability for future policy benefits and claims,
deferred income taxes and deferred policy acquisition costs.
Although some variability is inherent in these estimates,
management believes that the amounts provided are adequate.
(d) Investments
---------
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting
for Certain Investments in Debt and Equity Securities." SFAS 115
requires that investments in all debt securities and those equity
securities with readily determinable market values be classified
into one of three categories: held-to-maturity, trading or
available-for-sale. Classification of investments is based upon
management's current intent. Debt securities which management has
a positive intent and ability to hold until maturity are
classified as securities held-to-maturity and are carried at
amortized cost. Unrealized holding gains and losses on securities
held-to-maturity are not reflected in the financial statements.
Debt and equity securities that are purchased for short-term
resale are classified as trading securities. Trading securities
are carried at fair value, with unrealized holding gains and
losses included in earnings. All other debt and equity securities
not included in the above two categories are classified a
securities available-for-sale. Securities available-for-sale are
carried at fair value, with unrealized holding gains and losses
reported as a separate component of stockholders' equity, net of
tax and a valuation allowance against deferred acquisition costs.
At December 31, 1995 and 1994, the Company did not have any
investments categorized as trading securities. Adoption of this
statement had no effect on the income of the Company.
The Company's carrying value for investments in the
held-to-maturity and available-for-sale categories is reduced to
its estimated realizable value if a decline in the market value
is deemed other than temporary. Such reductions in carrying
values are recognized as realized losses and charged to income.
Interest on fixed maturities and short-term investments is
credited to income as it accrues on the principal amounts
outstanding adjusted for amortization of premiums and discounts
computed by the scientific method, which approximates the
effective yield method. Realized gains and losses on disposition
of investments are included in net income. The cost of investment
sold is determined on the specific identification method.
Dividends are recorded as income on the ex-dividend dates.
(Continued)
30
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(1), Continued
(d), Continued
Policy loans and student loans are carried at the unpaid
principal balance, less any amounts deemed to be uncollectible.
The Company's policy is that policy loans are made for amounts in
excess of the cash surrender value of the related policy.
Accordingly, policy loans are fully collateralized by the related
liability for future policy benefits for traditional insurance
policies and by the policyholders' account balance for interest
sensitive policies.
(e) Cash and Cash Equivalents
----------------------
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an
original maturity of one month or less to be cash equivalents.
(f) Deferred Policy Acquisition Costs
---------------------------
The costs of acquiring new business, net of the effects of
reinsurance, principally commissions and those home office
expenses that tend to vary with and are primarily related to the
production of new business, have been deferred. Deferred policy
acquisition costs applicable to non-universal life policies are
being amortized over the premium-paying period of the related
policies in a manner that will charge each year's operations in
direct proportion to the estimated receipt of premium revenue
over the life of the policies. Premium revenue estimates are made
using the same interest, mortality and withdrawal assumptions as
are used for computing liabilities for future policy benefits.
Acquisition costs relating to universal life policies are being
amortized at a constant rate based on the present value of the
estimated gross profit amounts expected to be realized over the
life of the policies. Beginning January 1, 1994, deferred policy
acquisition costs are adjusted to reflect the impact of
unrealized gains and losses on fixed maturity securities
available for sale.
The Company has performed several tests concerning the
recoverability of deferred acquisition costs. These methods
include those typically used by many companies in the life
insurance industry. Further, the Company conducts a sensitivity
analysis of its assumptions that are used to estimate the future
expected gross profits, which management has used to determine
the future recoverability of the deferred acquisition costs.
(g) Depreciation
----------
Depreciation is being provided on the straight-line method over
the estimated useful lives of the assets.
(Continued)
31
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(1), Continued
(h) Future Policy Benefits
------------------
The liability for future policy benefits has been provided on a
net level premium based upon estimated investment yields,
withdrawals, mortality and other assumptions that were
appropriate at the time the policies were issued. Such estimates
are based upon industry data and the Company's past experience as
adjusted to provide for possible adverse deviation from the
estimates.
(i) Recognition of Premium Revenue and Related Costs
-----------------------------------------
Premiums are recognized as revenue as follows:
Universal life policies - premiums received from policyholders
are reported as deposits. Cost of insurance, policy
administration and surrender charges which are charged against
the policyholder account balance during the period, are
recognized as revenue as earned. Amounts assessed against the
policyholder account balance that represent compensation to the
Company for services to be provided in future periods are
reported as unearned revenue and recognized in income using the
same assumptions and factors used to amortize acquisition costs
capitalized.
Annuity contracts with flexible terms - premiums received from
policyholders are reported as deposits.
All other policies - recognized as revenue over the premium
paying period.
(j) Income Taxes
-----------
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.
(k) Earnings Per Share
---------------
Earnings per share are computed based on weighted average
outstanding shares for each year.
(l) Reclassification
-------------
Certain amounts presented in the 1994 and 1993 financial
statements have been restated to conform to the 1995
presentation.
(Continued)
32
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(2) Basis of Financial Statements
-----------------------
The more significant generally accepted accounting principles applied in
the preparation of financial statements that differ from life insurance
statutory accounting practices prescribed or permitted by regulatory
authorities (which are primarily designed to demonstrate solvency) are
as follows:
(a) Costs of acquiring new business are deferred and amortized,
rather than being charged to operations as incurred.
(b) The liability for future policy benefits and expenses is based on
conservative estimates of expected mortality, morbidity,
interest, withdrawals, and future maintenance and settlement
expenses, rather than on statutory rates for mortality and
interest.
(c) The liability for policyholder funds associated with universal
life and certain annuity contracts are based on the provisions of
Statement of Financial Accounting Standards Statement No. 97,
rather than on the statutory rates for mortality and interest.
(d) Investments in securities are reported as described in note 1(c),
rather than in accordance with valuations established by the
National Association of Insurance Commissioners ("NAIC").
Pursuant to NAIC valuations, bonds eligible for amortization are
reported at amortized value; other securities are carried at
values prescribed by or deemed acceptable by NAIC including
common stocks, other than stocks of affiliates, at market value.
(e) Deferred income taxes, if applicable, are recognized for future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
(f) The statutory liabilities for the asset valuation reserve and
interest maintenance reserve have not been provided in the
financial statements.
(g) Certain assets, principally receivables from agents and
equipment, are reported as assets rather than being charged
directly to surplus.
(h) Expenses attributable to the public offering of the common shares
have been reclassified from retained earnings to capital in
excess of par.
(i) Realized gains or losses on the sale or maturity of investments
are included in the statement of income and not recorded net of
taxes and amounts transferred to the interest maintenance reserve
as required by statutory accounting practices.
(Continued)
33
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(2), Continued
(j) Certain proceeds from a note payable (note 9) that are treated as
shareholders' equity for statutory purposes are treated as a
liability under generally accepted accounting principles.
(k) Reinsurance assets and liabilities are reported on a gross basis
rather than shown on a net basis as permitted by statutory
accounting practices.
A reconciliation of net income (loss) for the years ended December 31,
1995, 1994 and 1993 and shareholders' equity as of December 31, 1995 and
1994 between the amounts reported on a statutory basis and the related
amounts presented on the basis of generally accepted accounting
principles is as follows:
<TABLE>
<CAPTION>
Shareholders'
Net income equity
Years ended December 31, December 31,
---------------------------------------- ---------------------------
1995 1994 1993 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
As reported on a statutory basis $ 232,180 55,816 195,794 8,770,411 8,759,282
------- ------- ------ -------- --------
Adjustments:
Deferred policy acquisition
costs, net (290,344) 724,549 152,801 18,145,111 20,104,624
Future policy benefits,
unearned premiums and
policyholders' funds 1,006,862 586,243 189,956 (12,340,766) (14,632,156)
Deferred income taxes 221,000 (430,000) 142,000 (905,000) (474,000)
Asset valuation reserve - - - 807,899 481,454
Interest maintenance
reserve 24,909 (4,092) 52,501 227,957 203,048
Non-admitted assets - - - 265,507 431,092
Unrealized gains (losses)
- SFAS 115 - - - 734,686 (1,374,628)
Capital and surplus note - - - (1,000,000) (1,000,000)
Other adjustments, net (79,704) 81,463 (28,400) 120,805 145,809
------- ------- ------ -------- --------
Net increase (decrease) 882,723 958,163 508,858 6,056,199 3,885,243
------- ------- ------ -------- --------
As reported on a GAAP basis $ 1,114,903 1,013,979 704,652 14,826,610 12,644,525
======= ======= ====== ======== ========
</TABLE>
(Continued)
34
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(2), Continued
Under applicable laws and regulations, the Company is required to
maintain minimum surplus as to policyholders, determined in accordance
with regulatory accounting practices, in the aggregate amount of
approximately $1,800,000.
The payment of dividends by the Company is subject to the regulation of
the State of Florida Department of Insurance. A dividend may be declared
and paid without prior Florida Insurance Commissioner's approval if the
dividend is equal to or less than the greater of: (a) 10% of the
Company's surplus as to policyholder's derived from realized net
operating profits on its business and net realized capital gains; or (b)
the Company's entire net operating profits and realized net capital
gains derived during the immediately preceding calendar year, if the
Company will have surplus as to policyholders equal to or exceeding 115%
of the minimum required statutory surplus as to policyholders after the
dividend is declared and paid. As a result of such restrictions, the
maximum dividend payable by the Company during 1996 without prior
approval is approximately $200,000.
The Risk-Based Capital ("RBC") for Life and/or Health Insurers Model Act
(the "Model Act") was adopted by the National Association of Insurance
Commissioners (NAIC) in 1992. The main purpose of the Model Act is to
provide a tool for insurance regulators to evaluate the capital of
insurers. Based on calculations using the appropriate NAIC formula, the
Company exceeded the RBC requirements at December 31, 1995.
(3) Investments
---------
(a) Equity Securities and Fixed Maturities
-------------------------------
Equity securities consist of $1,715,386 and $1,380,761 of common
stock at December 31, 1995 and 1994, respectively.
Unrealized (depreciation) appreciation in investments in equity
securities for the years ended December 31, 1995 and 1994 is
$406,611 and $(108,809), respectively.
(Continued)
35
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(3), Continued
(a), Continued
The amortized cost and estimated fair values of investments in
debt securities are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
December 31, 1995:
Held to maturity:
U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies (guaranteed) $ 6,410,291 157,709 - 6,568,000
Corporate securities 7,743,286 174,839 3,403 7,914,722
Special revenue and
special assessment
obligations and all
nonguaranteed
obligations of agencies
and authorities of
governments and their
political subdivisions 1,011,818 - - 1,011,818
-------- ------- ------- --------
15,165,395 332,548 3,403 15,494,540
-------- ------- ------- --------
Available for sale:
U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies (guaranteed) 16,533,564 721,436 - 17,255,000
Corporate securities 3,931,378 33,111 16,489 3,948,000
</TABLE>
(Continued)
36
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(3), Continued
(a), Continued
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Special revenue and
special assessment
obligations and all
nonguaranteed
obligations of agencies
and authorities of
governments and their
political subdivisions 612,468 - 3,372 609,096
-------- ------- ------- --------
21,077,410 754,547 19,861 21,812,096
-------- ------- ------- --------
$ 36,242,805 1,087,095 23,264 37,306,636
======== ======= ======= ========
December 31, 1994:
Held to maturity:
U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies (guaranteed) $ 2,837,876 - 45,876 2,792,000
Corporate securities 7,848,160 14,550 254,757 7,607,953
Special revenue and
special assessment
obligations and all
nonguaranteed
obligations of agencies
and authorities of
governments and their
political subdivisions 2,130,301 - 55,330 2,074,971
-------- ------- ------- --------
12,816,337 14,550 355,963 12,474,924
-------- ------- ------- --------
</TABLE>
(Continued)
37
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(3), Continued
(a), Continued
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies (guaranteed) 15,340,641 - 1,014,641 14,326,000
Corporate securities 3,927,987 26,811 386,798 3,568,000
Special revenue and
special assessment
obligations and all
nonguaranteed
obligations of agencies
and authorities of
governments and their
political subdivisions 747,197 - - 747,197
-------- ------- ------- --------
20,015,825 26,811 1,401,439 18,641,197
-------- ------- ------- --------
$ 32,832,162 41,361 1,757,402 31,116,121
======== ======= ======= ========
</TABLE>
Unrealized (depreciation) appreciation of fixed maturities for
years ending December 31, 1995, 1994 and 1993 is $2,779,872,
$(2,534,413) and $351,427, respectively.
(Continued)
38
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(3), Continued
(a), Continued
The amortized cost and estimated fair value of fixed maturities
at December 31, 1995, by contractual maturity, are summarized
below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Fixed maturity securities held-to-maturity:
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
-------- --------
<S> <C> <C>
Due in one year or less $ 2,054,658 2,073,000
Due after one year through five years 9,817,945 9,984,456
Due after five years through ten years 2,005,709 2,150,000
-------- --------
13,878,312 14,207,456
Mortgage backed securities 1,287,083 1,287,084
-------- --------
$ 15,165,395 15,494,540
======== ========
Fixed maturity securities available-for-sale:
Due in one year or less 2,349,434 2,350,000
Due after one year through five years 10,047,900 10,195,000
Due after five years through ten years 5,279,717 5,513,000
Due after ten years 2,787,889 3,145,000
-------- --------
20,464,940 21,203,000
Mortgage backed securities 612,470 609,096
-------- --------
$ 21,077,410 21,812,096
======== ========
</TABLE>
(Continued)
39
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(3), Continued
(a), Continued
Proceeds from sale of equity securities and fixed maturities
available for sale and related realized gains and losses are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Proceeds from sale of equity securities $ 854,339 650,294 670,758
======= ====== =======
Proceeds from sale of fixed maturities
available for sale $ 1,809,750 - 1,821,147
======= ====== =======
Equity securities:
Gross realized gains 145,136 67,146 77,341
Gross realized (losses) (119,908) (16,474) (53,208)
Fixed maturities:
Gross realized gains 55,543 - 70,483
Gross realized (losses) (20,540) - -
------- ----- -------
$ 60,231 50,672 94,616
======= ====== =======
</TABLE>
Certain of the fixed maturity securities classified as available
for sale and held to maturity were called during the year ended
December 31, 1995 resulting in the following realized gains and
losses:
1995 1994
---- ----
Held to maturity:
Gross realized gains $ 6 -
Available for sale:
Gross realized gains - 10,060
-- -----
$ 6 10,060
== =====
(b) Concentrations of Credit Risk
------------------------
At December 31, 1995 and 1994, the Company did not hold any
unrated or less-than-investment grade corporate debt securities.
The Company also invests in subsidized and nonsubsidized student
loans totaling $4,403,061 and $4,837,123 at December 31, 1995 and
1994, respectively, which are guaranteed by the U.S. government.
Subsequent to December 31, 1995, all of these loans were sold at
their unpaid principal balance.
(Continued)
40
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(3), Continued
(c) Investment Income
----------------
Net investment income for the years ended December 31, 1995, 1994
and 1993 consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest:
Fixed maturities $ 2,319,914 2,080,464 1,485,217
Policy and student loans 483,382 768,631 1,125,035
Short-term investments 333,850 176,941 174,972
Dividends on equity securities:
Common stock, including mutual fund 28,247 24,418 17,230
------- ------- --------
3,165,393 3,050,454 2,802,454
Less investment expenses 166,518 299,683 284,449
------- ------- -------
$ 2,998,875 2,750,771 2,518,005
======= ======= =======
</TABLE>
(d) Investments on Deposit
-------------------
In order to comply with statutory regulations, investments were
on deposit with the Insurance Departments of certain states as
follows:
1995 1994
---- ----
Florida $ 1,735,900 1,744,017
Alabama 100,000 100,000
South Carolina 304,696 305,356
Georgia 251,193 250,000
------- -------
2,391,789 2,399,373
======= =======
Certain of these assets, totaling approximately $650,000 for each
of the years ended December 31, 1995 and 1994, are restricted for
the future benefit of policyholders in a particular state.
(Continued)
41
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(4) Deferred Policy Acquisition Costs
---------------------------
Deferred policy acquisition costs at December 31, 1995, 1994 and 1993
consist of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Deferred policy acquisition costs at beginning
of year $ 20,104,624 18,279,497 18,126,696
Policy acquisition costs deferred:
Commissions 1,418,644 2,200,505 3,423,146
Underwriting and issue costs 805,794 1,060,192 1,020,134
Other 554,955 706,558 926,392
SFAS 115 (1,669,164) 1,100,578 -
-------- -------- --------
1,110,229 5,067,833 5,369,672
Amortization of deferred policy acquisitions
costs (3,069,742) (3,242,706) (5,216,871)
-------- -------- --------
Deferred policy acquisition costs at end of year $ 18,145,111 20,104,624 18,279,497
======== ======== ========
</TABLE>
(5) Property and Equipment
-------------------
Property and equipment at December 31, 1995 and 1994 consists of the
following:
1995 1994
---- ----
Land $ 982,027 982,027
Building and improvements 2,152,203 2,049,150
Furniture and equipment 1,013,268 1,025,436
------- -------
4,147,498 4,056,613
Less accumulated depreciation 1,270,317 1,232,443
------- -------
$ 2,877,181 2,824,170
======= =======
Depreciation expense for the years ended December 31, 1995, 1994 and
1993 totaled $150,213, $148,355 and $163,400, respectively.
(Continued)
42
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(6) Future Policy Benefits
------------------
At December 31, 1995 and 1994, future policy benefits, exclusive of
universal life and flexible term annuities, consist of the following:
1995 1994
---- ----
Life insurance $ 746,477 701,498
Annuities 296,242 332,490
Accident and health insurance 7,779 7,657
------- -------
Total life insurance policies $ 1,050,498 1,041,645
======= =======
Life insurance in-force aggregated approximately $1.3 billion and $1.5
billion at December 31, 1995 and 1994, respectively.
Mortality and withdrawal assumptions are based upon the Company's
experience and actuarial judgment with an allowance for possible
unfavorable deviations from the expected experience.
The mortality table used in calculating benefit reserves is the
1965-1970 Basic Select and Ultimate for males.
For non-universal life policies written during 1983 through 1988,
interest rates used are 8.0 percent for policy years one through five,
decreasing by .1 percent per year for policy years six through twenty,
to 6.5 percent for policy years twenty-one and thereafter. For
non-universal life policies written in 1982 and prior, interest rates
vary, depending on policy type, from 7 percent for all policy years to 6
percent for policy years one through five and 5 percent for years six
and thereafter. For universal life policies written since 1988, the
interest rate used is a credited rate based upon the Company's
investment yield plus 1 percent.
(7) Reinsurance
----------
The Company routinely cedes and, to a limited extent, assumes
reinsurance to limit its exposure to loss on any single insured. Ceded
insurance is treated as a risk and liability of the assuming companies.
As of December 31, 1995, ordinary insurance coverage in excess of
$75,000 is reinsured; however, for some policies previously issued, the
first $30,000, $40,000 or $50,000 was retained and the excess ceded. The
retention limit for some substandard risks is less than $75,000.
Reinsured risks would give rise to liability to the Company only in the
event that the reinsuring company might be unable to meet its
obligations under the reinsurance agreement in force, as the Company
remains primarily liable for such obligations. Under these contracts,
the Company has ceded premium of $525,662, $585,957 and $510,469
included in reinsurance ceded, and received recoveries of $204,171,
$514,868 and $405,293 included in annuity, death and other benefits for
the years ended December 31, 1995, 1994 and 1993, respectively.
(Continued)
43
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(7), Continued
On December 31, 1992, the Company entered into a reinsurance agreement
ceding an 18% share of all universal life policies in force at December
31, 1992 as a measure to manage the future needs of the Company. The
reinsurance agreement is a co-insurance treaty entitling the assuming
company to 18% of all future premiums, while making the ceding company
responsible for 18% of all future claims and policyholder loans relating
to the ceded policies. In addition, the Company receives certain
commission and expense reimbursements. Assets with a market value
approximating the balance of policyholders' account balances less policy
loans, on a statutory basis, ceded to the reinsurer are held in trust
for benefit of the Company. The market value of those assets was
$6,702,079 at December 31, 1995.
As of December 31, 1992, the Company ceded premiums of $5,240,058, equal
to the 18% of net statutory reserves ceded on the effective date of the
contract. In return, the Company received a commission and expense
allowance of $2,497,370. The economic gain on the reinsurance
transaction amounted to approximately $1,600,000, however, management
deferred approximately $1,000,000 of the gain against deferred
acquisition costs as a provision for the recoverability of such costs.
Based upon management's and actuarial evaluation of such costs,
approximately $200,000, $500,000 and $300,000 of the amount deferred was
amortized against deferred acquisition costs during 1995, 1994 and 1993,
respectively.
For the years ended December 31, 1995 and 1994, the Company ceded
premiums of $675,770 and $758,956, included in reinsurance ceded, and
received recoveries of $459,090 and $386,509, included in annuity, death
and other benefits, respectively. The funds held in reinsurance treaties
with reinsurer of $977,416 and $700,701 represent the 18% share of
policy loans ceded to the reinsurer at December 31, 1995 and 1994,
respectively.
(8) Notes Payable
-----------
The note payable of $1,400,553 and $891,823 at December 31, 1995 and
1994, respectively, secured by student loans equaling 115% of the unpaid
principal balance, relates to advances under a $10,000,000 line of
credit ($8,599,447 available to be drawn at December 31, 1995). The note
bears interest at a variable rate, 6% at December 31, 1995 and matures
on August 19, 1996.
Interest expense relating to these notes payable during the three years
ended December 31, 1995, 1994 and 1993 totaled $26,240, $60,864 and
$73,924, respectively and is included in net investment income.
(Continued)
44
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(9) Note Payable to Related Party
------------------------
Note payable to related party consists of amounts due on demand to
Consolidare Enterprises, Inc., the Company's majority shareholder. The
note proceeds were obtained in December, 1988 and the note qualifies as
shareholders' equity for statutory accounting purposes in accordance
with Section 628.401 of the Florida Statutes. At December 31, 1995, the
note bears interest at 9.0% percent (payable monthly); principal
repayment is contingent upon the Company maintaining statutory surplus
in excess of $1,750,000 and approval in advance by the Florida
Department of Insurance. Interest expense relating to the balance of
note payable to related party during 1995, 1994 and 1993 aggregated
$90,000, $90,000 and $90,000, respectively.
(10) Income Taxes
-----------
As discussed in note 1(j), the Company adopted Statement 109 in 1992 and
has applied the provisions of Statement 109 retroactively to January 1,
1991.
Income taxes for the years ended December 31, 1995, 1994 and 1993 is
summarized as follows:
1995 1994 1993
---- ---- ----
Current:
Federal $ 370,800 100,000 129,000
State 10,200 - 14,000
------ ------ ------
381,000 100,000 143,000
------ ------ ------
Deferred:
Federal (188,700) 387,000 (128,000)
State (32,300) 43,000 (14,000)
------ ------ ------
(221,000) 430,000 (142,000)
------ ------ ------
$ 160,000 530,000 1,000
====== ====== ======
(Continued)
45
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(10), Continued
Income tax expense for the years ended December 31, 1995, 1994 and 1993
differs from "expected" tax (computed by applying the U.S. federal
income tax rate of 35% in 1995 and 1994 and 34% in 1993 to pretax
income) as a result of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 446,200 541,000 240,000
Increase (reduction) in income taxes resulting from:
Small life insurance company deduction (340,200) (83,000) (252,100)
Changes in the valuation allowance for
deferred tax assets, allocated to income
tax expense 62,600 14,000 49,000
(Over) under accrual of prior year expense 11,000 29,000 (37,000)
State taxes, net of federal income tax benefit (14,600) 28,000 -
Other, net (5,000) 1,000 1,100
------ ------ ------
$ 160,000 530,000 1,000
====== ====== ======
</TABLE>
Under tax laws in effect prior to 1984, a portion of a life insurance
company's gain from operations was not currently taxed but was
accumulated in a memorandum "Policyholders' Surplus Account." As a
result of the Tax Reform Act of 1984, the balance of the Policyholders'
Surplus Account has been frozen as of December 31, 1983 and no
additional amounts will be accumulated in this account. However,
distributions from the account will continue to be taxed, as under
previous law, if any of the following conditions occur:
(a) The Policyholders' Surplus exceeds a prescribed maximum; or
(b) Distributions, other than stock dividends, are made to
shareholders in excess of Shareholders' surplus, as defined by
prior law; or
(c) The entity ceases to qualify for taxation as a life insurance
company.
At December 31, 1995, the balance of the Policyholders' Surplus account
aggregated approximately $236,000. The Company has not recorded deferred
income taxes totaling approximately $80,000 relating to this amount as
it has no plan to distribute the amounts in Policyholders' Surplus in
the foreseeable future.
(Continued)
46
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(10), Continued
The Tax Reform Act of 1986 enacted a new separate parallel tax system
referred to as the Alternative Minimum Tax (AMT) system. AMT is based on
a flat rate applied to a broader tax base. It is calculated separately
from the regular Federal income tax and the higher of the two taxes is
paid. The excess of the AMT over regular tax is a tax credit, which can
be carried forward indefinitely to reduce regular tax liabilities of
future years. In 1995, 1994 and 1993, AMT exceeded regular tax by
$62,600, $14,000 and $49,000, respectively. At December 31, 1995, the
AMT tax credit available to reduce future regular tax totaled $333,600.
The principal elements of deferred income taxes consist of the
following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Deferred policy acquisition costs $ (783,300) 627,000 (131,000)
Future policy benefits 305,300 (42,000) (11,000)
Differences in bases in investments 299,500 (197,000) (9,000)
Other (42,500) 42,000 9,000
------ ------ ------
$ (221,000) 430,000 (142,000)
====== ====== ======
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Unearned premiums, due to deferral of "front-end"
fee for financial reporting purposes $ 3,431,100 3,920,000
Policy liabilities and accruals, principally due to
adjustments to reserves for tax purposes 1,984,000 1,800,000
Other 39,200 19,000
Investments - 518,000
Alternative minimum tax credit carryforwards 333,600 271,000
------- -------
Total gross deferred tax assets 5,787,900 6,528,000
Less valuation allowance (333,600) (271,000)
------- -------
Net deferred tax assets 5,454,300 6,257,000
------- -------
</TABLE>
(Continued)
47
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(10), Continued
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax liabilities:
Deferred acquisition costs, principally due to
deferrals for financial reporting purposes (5,862,500) (6,646,000)
Other (62,800) (85,000)
Investments (434,000) -
------- -------
Total gross deferred tax liabilities (6,359,300) (6,731,000)
------- -------
Net deferred tax liability $ (905,000) (474,000)
======= ========
</TABLE>
The net change in the total valuation allowance for the years ended
December 31, 1995, 1994, and 1993 was an increase of $62,600, $14,000
and $49,000, respectively.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over
the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the
benefits of these deductible differences, net of the existing valuation
allowances at December 31, 1995.
(11) Related Party Transactions
---------------------
The Company's general agent, Insuradyne Corporation, is a wholly-owned
subsidiary of Consolidare Enterprise, Inc., which owns approximately
fifty-nine percent (59%) of the Company's outstanding stock. The
balances due (to) from affiliated insurance agency reflected in the
accompanying balance sheets principally represent unearned commission
advances paid to Insuradyne. The Company incurred commission expense to
Insuradyne aggregating $422,121, $582,059 and $910,936, in 1995, 1994
and 1993, respectively. These amounts are included as components of
acquisition costs deferred and related amortization. Insuradyne incurred
insurance-related expenses aggregating $35,271, $192,332 and $230,478 in
1995, 1994 and 1993, respectively.
(Continued)
48
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(12) Agents' Incentive Stock Bonus Plan
-----------------------------
The Company had an incentive bonus plan for agents that was adopted in
1983 and effective through December 31, 1990. Bonuses granted under the
plan were vesting over a five year period commencing on the fifth
anniversary date of the award. Once vested, the agent had the option to
receive the bonus in cash or shares of common stock. The number of
shares of common stock was determined on the date of the award as the
number of whole shares equal to the award based on the applicable stock
price on that date.
The first awards granted became fully vested during April, 1993. On
November 17, 1993, the Board of Directors approved an amendment to the
plan to provide an early payment option. The agents were given an
increased award in exchange for settling the awards early. During 1994,
a total award was distributed in the form of 63,295 shares of common
stock, totaling $125,000 and cash of $3,336.
(13) Disclosures About Fair Value of Financial Instruments
-------------------------------------------
Statement of Financial Accounting Standards No. 107 Disclosures About
Fair Value of Financial Instruments (SFAS 107) requires the Company to
disclose estimated fair value information. The following methods and
assumptions were used by the Company in estimating fair values of
financial instruments as disclosed herein:
Cash and cash equivalents, short-term investments and policy and student
loans: The carrying amount reported in the balance sheet for these
instruments approximate their fair value.
Investment securities available-for-sale and held-to-maturity: Fair
value for fixed maturity and equity securities is based on quoted market
prices at the reporting date for those or similar investments.
(Continued)
49
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
(13), Continued
The following table presents the carrying amounts and estimated fair
values of financial instruments held at December 31, 1995 and 1994. The
fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties.
<TABLE>
<CAPTION>
1995 1994
---------------------------------- -----------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------- -------- ------- --------
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities held to
maturity (see note 3) $ 15,165,395 15,494,540 $ 12,816,337 12,474,924
Fixed maturities available
for sale (see note 3) 21,812,096 21,812,096 18,641,197 18,641,197
Equity securities available
for sale 1,715,386 1,715,386 1,380,761 1,380,761
Policy and student loans 9,971,653 9,971,653 8,866,968 8,866,968
Short-term investments 1,499,100 1,499,100 1,875,758 1,875,758
Cash and cash equivalents 406,752 406,752 638,079 638,079
Financial liabilities:
Policy liabilities-
policyholders' account
balances 50,624,276 50,624,276 47,618,490 47,618,490
</TABLE>
(14) Legal Proceedings
---------------
Lawsuits against the Company have arisen in the normal course of the
Company's business. However, contingent liabilities arising from
litigation and other matters are not considered material in relation to
the financial position of the Company.
To the best of the Company's knowledge, it has no potential or pending
contingent liabilities that might be material to the Company's financial
condition, results of operations or liquidity pursuant to product and
environmental liabilities.
50
<PAGE>
Schedule I
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Summary of Investments Other Than Investments in Related Parties
December 31, 1995
<TABLE>
<CAPTION>
Number of shares or units-
principal amounts of Amount at which shown
Type of investment bonds or notes Cost Value in the balance sheet
__________________ __________________________ ____ _____ _____________________
<S> <C> <C> <C> <C>
Fixed maturities held for investment:
U.S. Government and government agencies
and authorities 6,400 $ 6,410,291 6,568,000
Public utilities 500 512,092 550,000
Industrial and miscellaneous 7,250 7,231,194 7,364,722
Special revenue and special assessment of
agencies and authorities of governments
and political subdivisions 1,000 1,011,818 1,011,818
_____ ________ ________ ________
Total fixed maturities 15,150 15,165,395 15,494,540 15,165,395
_____ ________ ________ ________
Fixed maturities available for sale:
U.S. Government and government agencies
and authorities 16,400 16,533,564 17,255,000
Public utilities 1,290 1,293,685 1,290,000
Industrial and miscellaneous 2,650 2,637,693 2,658,000
Special revenue and special assessment of
agencies and authorities of governments
and political subdivisions 618 612,468 609,096
_____ ________ ________ ________
20,958 21,077,410 21,812,096 21,812,096
_____ ________ ________ ________
Total fixed maturities 36,108 36,242,805 37,306,636 36,977,491
===== ________ ======== ________
Equity securities:
Common, including investments in mutual
fund 30,249 1,297,041 1,715,386 1,715,386
===== ________ ======== ________
Policy loans 5,568,592 5,568,592
________ ________
Student loans 4,403,061 4,403,061
________ ________
Short-term investments 1,499,100 1,499,100
________ ________
Other invested assets 22,578 22,578
________ ________
Total investments $49,033,177 50,186,208
======== ========
</TABLE>
See accompanying auditors' report.
51
<PAGE>
Schedule III
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Supplementary Insurance Information
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Future policy Other Benefits Amortization
Deferred benefits, Policy- policy claims of deferred
policy losses claims holders' claims and Net losses and policy Other
acquisition and loss account Unearned benefits Premium investment settlement acquisition operating
cost expenses balances premiums payable revenue income expenses costs expenses
__________ ____________ ________ _________ __________ ________ __________ __________ ___________ ________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 Life
and
annuities $18,145,111 1,050,498 50,624,276 9,116,890 191,955 8,158,937 2,998,875 4,048,125 3,069,742 2,735,280
======== ======= ======== ======== ====== ======== ======= ======= ======= =======
1994 Life
and
annuities $20,104,624 1,041,645 47,618,490 10,416,064 297,376 9,299,789 2,750,771 4,048,221 3,242,706 3,186,386
======== ======= ======== ======== ====== ======== ======= ======= ======= =======
1993 Life
and
annuities $18,279,497 1,094,408 42,541,677 10,365,963 647,876 10,738,921 2,518,005 4,568,467 5,216,871 2,814,921
======== ======= ======== ======== ====== ======== ======= ======= ======= =======
</TABLE>
(a)Amounts for reinsurance ceded included in the December 31, 1991 balances
have not been reclassified out of future policy benefits and policyholders'
account balance at December 31, 1993 to reflect the adoption of SFAS No.
113.
See accompanying auditors' report.
52
<PAGE>
Schedule IV
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Reinsurance
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
other from other assumed
Gross amount companies companies Net amount to net
____________ _________ _________ __________ _________
<S> <C> <C> <C> <C> <C>
December 31, 1995:
Life insurance in force $ 1,298,205,000 448,382,000 507,552,000 1,357,375,000 37%
=========== ========= ========= ========== ==
Premiums:
Life insurance 8,829,072 1,201,432 529,912 8,157,552 6
Accident and health
insurance 1,385 -- -- 1,385 -
___________ __________ __________ ___________ __
Total premiums $ 8,830,457 1,201,432 529,912 8,158,937 6%
=========== ========= ========= ========== ==
December 31, 1994:
Life insurance in force $ 1,469,154,000 502,185,000 531,502,000 1,498,471,000 35%
=========== ========= ========= ========== ==
Premiums:
Life insurance 10,047,808 1,344,907 595,260 9,298,161 6%
Accident and health
insurance 1,628 -- -- 1,628 -
___________ __________ __________ ___________ __
Total premiums $ 10,049,436 1,344,907 595,260 9,299,789 6%
=========== ========= ========= ========== ==
</TABLE>
53
<PAGE>
Schedule IV
Page 2 of 2
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Reinsurance
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Ceded to Assumed of amount
other from other assumed
Gross amount companies companies Net amount to net
____________ _________ _________ __________ _________
<S> <C> <C> <C> <C> <C>
December 31, 1993:
Life insurance in force $ 1,616,159,000 535,217,000 564,828,000 1,645,770,000 34%
=========== ========= ========= ========== ==
Premiums:
Life insurance 11,751,283 1,529,385 515,255 10,737,153 5
Accident and health
insurance 1,768 -- -- 1,768 -
___________ __________ __________ ___________ __
Total premiums $ 11,753,051 1,529,385 515,255 10,738,921 5%
=========== ========= ========= ========== ==
</TABLE>
See accompanying auditors' report.
54
<PAGE>
Item 9. Change in and disagreements on Accounting and Financial
Disclosure.
Not applicable
PART III
Item 10. Directors and Executive Officers of the Company.
(a) Directors. The following table lists the names and ages of all directors of
the Company at December 31, 1995, states the date when service as a director of
the Company began, and lists all other positions or offices with the Company
presently held by each such person.
<TABLE>
<CAPTION>
Director Other Positions &
Name Age Since Offices with Company
<S> <C> <C> <C>
Samuel F. Brewer 60 May, 1978 Member, Audit Committee
A. Thomas Frank 71 June, 1986 Member, Executive Committee
Frank A. Hulet 76 May 1978 Chairman, Audit Committee
C. Wesley Johnson 76 May, 1978
Lewis E. Kassis 83 Jan., 1981
Robert L. Martin 54 June, 1979 Member, Audit Committee
Charles W. Mullenix 79 April, 1979 Member, Executive Committee
George Pihakis 70 May, 1978 President & Chief Executive
Officer, Member, Executive
Committee
Ferris Ritchey, Jr. 66 April, 1978 Chairman of the Board, Chairman
Executive Committee
David C. Thompson 58 April, 1978 Executive Vice President & Chief
Operating Officer, Secretary,
Treasurer
Ferd F. Weil, Sr. 85 April, 1978 Member, Executive Committee
Lloyd C. Zobrist 68 May, 1978 Member, Executive Committee
</TABLE>
All Directors serve until the next Annual Meeting of Share holders and
until their respective successors are duly elected and qualified. All of the
Directors named in the table above are stock- holders of Consolidare
Enterprises, Inc., which purchased effective control of the Company on May 3,
1978. Except for such affiliation with Consolidare Enterprises, Inc., there
exists no arrangement or understanding between any Director and any other person
or persons pursuant to which any of such Directors were selected as Directors of
the Company.
55
<PAGE>
(b) Executive Officers. The following table lists the names and ages of the
executive officers of the Company, the positions with the Company presently held
by each such officer, and the period during which each has served as such:
Position Commencement Name Age Held of Service
<TABLE>
<CAPTION>
Position Commencement
Name Age Held of Service
<S> <C> <C> <C>
George Pihakis 70 President & Chief Executive June, 1979
Officer; Director
David C. Thompson 57 Executive Vice President and April, 1978
Chief Operating Officer;
Treasurer; Secretary; Director
Terri Seamon 41 Vice President; Controller July, 1992
Nikki Clark 48 Vice President; Director of July, 1992
Financial Services
Steve Reck 54 Vice President; Chief Actuary July, 1995
</TABLE>
The Company has an executive compensation agreement with George Pihakis,
President and Chief Executive Officer of the Company. The term of the agreement
is automatically extended each year for an additional five year period unless
either party gives notice of termination. The agreement provides for annual
increases in Mr. Pihakis' compensation in such amounts as shall be determined by
the Board of Directors.
At a meeting of the Company's Board of Directors in January of 1993, the
base compensation payable to Mr. Pihakis under the agreement was raised to
$244,800.
Except as set forth herein, the officers of the Company have no definite
terms of office as such; they serve at the pleasure of the Board of Directors.
The Board of Directors customarily elects officers annually.
(c) Business Experience of Officers and Directors. The following is a brief
account of the business experience of each executive officer and Director of the
Company during the past five years or more:
Samuel F. Brewer - Since July of 1990, Mr. Brewer has been the owner of
Brewer Development Corporation, Inc., a food service company. From 1976 to
present, Mr. Brewer has been owner and President of Brewer-Costin Inc.
Insurance. From 1983 to 1989, Mr. Brewer served as the State Executive Director
of the Georgia office of the Agricultural Stabilization and Conservation
Services of the U.S. Department of Agriculture. Mr. Brewer is the brother-in-law
of Ferris S. Ritchey, Jr., a director of the Company.
Nikki Clark - Ms. Clark has been employed by the Company since 1988. Since
her employment by the Company, her duties have
56
<PAGE>
included responsibility for policyholder services, data processing services,
agent advances and commissions, agent licensing matters and record keeping. In
July of 1992, Ms. Clark was elected to the office of Vice President and Director
of Financial Services for the Company. Ms. Clark is the daughter of Mr. George
Pihakis, the President and Chief Executive Officer of the Company.
A. Thomas Frank - Mr. Frank was the Chairman of the Board and the President
of Medidentic, Inc., a financial consulting firm for physicians, from 1959 -
1989. Mr. Frank retired from this position in 1989.
Frank A. Hulet - Mr. Hulet served as a consultant to Food-Mills, Inc.
d/b/a Jayhawk Manufacturing Company, a manufacturer of food processing machinery
located in Hutchinson, Kansas until he retired in 1992. From 1977 to 1983, Mr.
Hulet served as Secretary/ Treasurer and General Manager of Jayhawk
Manufacturing Company.
C. Wesley Johnson - For more than five years, Mr. Johnson had been manager
of the Sacramento Field Office of the Fort Worth Division of General Dynamics
Corporation, a diversified aerospace company. Mr. Johnson retired from this
position in 1984.
Lewis E. Kassis - Mr. Kassis has for many years been the Chairman of the
Board and part owner of Wholesale Cash & Carry (Grocers), Sacramento,
California. He is also a partner of Kassis Enterprises, Country Club Lanes,
Kassis Wholesale Co. and an officer of Kassis Building Co.
Robert L. Martin - Mr. Martin is a rancher and cattlebroker. He is the
owner of Robert Lee Martin Ranch and a partner in I. L. Martin Ranch, both of
which are located in Jacksboro, Texas.
Charles W. Mullenix - Dr. Mullenix is an ophthalmologist who has served for
more than five years as President of Charles W. Mullenix and Richard B. O'Grady,
S. C., Ophthalmologists, Glenview, Illinois.
George Pihakis - Mr. Pihakis has served as President and Chief Executive
Officer of the Company since June of 1978. He is also the President of
Insuradyne Corporation. Mr. Pihakis is the father of Ms. Nikki Clark, a Vice
President and the Director of Financial Services for the Company.
Stephen L. Reck - Mr. Reck has been an FSA, Fellow of the Society of
Actuaries, since 1972. He has been with Southern Security since 1993 serving as
the Chief Actuary. His primary responsibility has been developing new products
as the Company expands their marketing to other distribution outlets. Prior to
joining Southern Security he was the President of Coastal States Life Insurance
Company.
57
<PAGE>
Ferris S. Ritchey, Jr. - Mr. Ritchey, an attorney, is the senior partner in
the law firm of Ritchey & Ritchey, P. A., a position which he has occupied for
more than five years. He is an officer of Bowlo-Mac, Inc., Super Bowl, Inc.,
Stonehenge, Inc., Vestavia Bowl, Inc., and P.R. Leasing Co., Inc. Mr. Ritchey is
the brother-in-law of Samuel F. Brewer, a Director of the Company.
Terri Seamon - Ms. Seamon has been an employee of the Company since August
of 1985. Since her employment by the Company her duties have included chief
accountant and controller. In July of 1992 Ms. Seamon was elected to the office
of Vice President and Controller of the Company.
David C. Thompson - Since April of 1978, Mr. Thompson has served as
Executive Vice President and Chief Operating Officer and Treasurer of the
Company. Since 1982, Mr. Thompson has served as Secretary of the Company. He
also serves as Vice President of Consolidare Enterprises and is Vice President
and Treasurer of Insuradyne Corporation. He is also the President of and a
stock- holder in BBQ Rib Ranch, Inc. Mr. Thompson is a certified public
accountant.
Ferd F. Weil, Sr. - Since April of 1990, Mr. Weil has served as a marketing
consultant to Compass Bank, Birmingham, Alabama. From 1969 until April of 1990,
Mr. Weil was a marketing consultant to the National Bank of Commerce,
Birmingham, Alabama. Since 1978, Mr. Weil has served as President and Treasurer
of Consolidare Enterprises, Inc., the Company's parent.
Lloyd C. Zobrist - Mr. Zobrist is a retired general contractor and real
estate developer from Morton, Illinois. He is a partner in Zobrist Development
Co., WRCL, Co., and Cross Creek Development Company and is Secretary/Treasurer
of N. Zobrist & Sons, Inc.
Except as otherwise noted above, no family relationships exist between any
of the Directors or executive officers of the Company.
No officer or Director of the Company presently holds a directorship in any
other company with a class of securities registered pursuant to Section 12 of
the Securities Exchange Act or subject to the requirements of Section 15(d) of
the Securities Exchange Act or any company registered as an investment company
under the Investment Company Act of 1940.
No person named as an officer or Director of the Company has, during the
past five years, filed a petition under the Bankruptcy Code, been convicted of a
crime, or been enjoined from participating in activities related to securities
or engaging in any type of business practice. Neither has any such person been
the subject of any order suspending his right to engage in any securities
related activity or finding any person so named to have violated any Federal or
state securities laws.
58
<PAGE>
(d) Compliance with Section 16(a) of the Exchange Act. The Company has no
class of securities registered pursuant to Section 12 of the Exchange Act.
Item 11. Executive Compensation.
(a) Summary Compensation. The following summary compensation table is
provided with respect to the Company's Chief Executive Officer and its Executive
Vice President, who constitute all of the executive officers of the Company
whose total annual salary and bonus exceed $100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Securities All other
Name and Annual Restricted Underlying LTIP Compen-
Principal Compensation Stock Awards Options/ Payouts sation
Position Year Salary ($) Bonus ($) ($) ($) SARs(#) ($) ($)
President
and Chief
Executive
Officer
George Pihakis 1995 $247,976 $0.00 $9,574(1) $0.00 N/A N/A N/A
George Pihakis 1994 $244,800 $0.00 $8,624(1) $0.00 N/A N/A N/A
George Pihakis 1993 $242,400 $0.00 $9,330(1) $0.00 N/A N/A N/A
Executive Vice
President
David C. Thompson 1995 $114,634 $0.00 $11,770(2) $0.00 N/A N/A N/A
David C. Thompson 1994 $114,300 $0.00 $10,700(2) $0.00 N/A N/A N/A
David C. Thompson 1993 $111,900 $0.00 $10,950(2) $0.00 N/A N/A N/A
</TABLE>
(1) During 1995 this amount included $4,800 paid in the form of a
Director's fee, $250 paid in the form of an Executive Committee Fee,
$4,524 paid in the form of a car allowance. During 1994 this amount
included $3,600 paid in the form of a Director's fee, $500 paid in the
form of an Executive Committee Fee, and $4,524 paid in the form of a
car allowance. During 1993 this amount included $3,600 paid in the
form of a Director's fee, $750 paid in the form of an Executive
Committee Fee, $4,980 paid in the form of a car allowance.
(2) During 1995 this amount included $4,800 paid in the form of a
59
<PAGE>
Director's Fee, $250 paid in the form of an Executive Committee Fee,
$6,000 paid in the form of a car allowance, and $720 paid in the form
of dues at a social club used exclusively for business purposes.
During 1994 this amount included $3,600 paid in the form of a
Director's fee, $500 paid in the form of an Executive Committee fee,
$6,000 paid in the form of a car allowance and $600 paid in the form
of dues at a social club used exclusively for business purposes.
During 1993 this amount included $3,600 paid in the form of a
Director's fee, $750 paid in the form of an Executive Committee fee,
$6,000 paid in the form of a car allowance and $600 paid in the form
of dues at a social club used exclusively for business purposes.
(b) Perquisites. Executive officers of the Company who are employees of the
Company are covered under a group life, group disability, and hospitalization
plan that does not discriminate in favor of officers and that is generally
available to all salaried employees. The Company does not have a pension,
retirement or other deferred compensation plan, or any other similar
arrangement.
(c) Director's Fees and Other Fees. Directors of the Company receive a
Director's fee of $4,800 per year for serving as Directors of the Company.
Directors of the Company also receive the sum of $250 each for each committee
meeting attended, if such committee meeting is not in conjunction with a meeting
of the Company's Board of Directors held at the same time and place.
(d) Employment Contracts. The Company has an executive compensation
agreement with George Pihakis, President and Chief Executive Officer of the
Company. The term of the agreement is automatically extended each year for an
additional five year period unless either party gives notice of termination. The
agreement provides for annual increases in Mr. Pihakis' compensation in such
amounts as shall be determined by the Board of Directors. The base compensation
payable to Mr. Pihakis under the agreement is $244,800.
(e) Compensation Committee Interlocks and Insider Participation. The
Executive Committee of the Company's Board of Directors makes recommendation to
the Board of Directors concerning the compensation of the Company's executive
officers. Subsequently, the Board of Directors makes all final decisions
concerning such compensation. The Company's Executive Committee consists of
Charles W. Mullenix, Ferris S. Ritchey, Jr., A. Thomas Frank, Ferd F. Weil,
Lloyd C. Zobrist and George Pihakis, President and Chief Executive Officer.
(f) Board Compensation Committee Report on Executive Compensation. In
determining what level and type of compensation was made available to the
Company's executive officers during 1995, the Executive Committee and Board of
Directors considered the over- all performance of the Company and each officer's
contribution to that performance. Specifically, in determining the compensation
of Mr. Pihakis, the Company's President and Chief Executive Officer, the
Executive Committee and Board of Directors considered his length of employment
with the Company, his experience in the industry, the financial condition of the
Company, payments received by other executive officers holding similar positions
and performing similar duties, and other subjective criteria.
60
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) The following table sets forth, as of December 31, 1995, information
with respect to the only persons known by the Company to be the beneficial owner
of more than 5% of the Company's outstanding voting securities:
<TABLE>
<CAPTION>
Number of Shares
Title and Nature of
of Name and Address of Beneficial Percent
Class Beneficial Owner Ownership of Class
<S> <C> <C> <C>
Common Consolidare Enterprises, Inc 1,090,496 57%
Shares c/o Southern Security Life Direct
Insurance Company
755 Rinehart Road
Lake Mary, FL 32746
Common Capital Indemnity Corp., 142,872 7.5%
Shares George A. Fait Direct
4610 University Ave, Madison, WI
</TABLE>
Executive officers and directors of the Company are shareholders of
Consolidare Enterprises, Inc., which was the owner of approximately 57% of the
Company's voting securities at December 31, 1995. At December 31, 1995,
approximately 62.8% of the issued and outstanding common shares of Consolidare
Enterprises, Inc. was owned by directors and executive officers of Company. The
following table sets forth information as to the common shares of Company's
parent, Consolidare Enterprises, Inc., beneficially owned by all directors and
executive officers of the Company at December 31, 1995.
<TABLE>
<CAPTION>
Name Number of Shares Percent of Class
<S> <C> <C>
Samuel F. Brewer 95,966 2.84%
A. Thomas Frank(1) 75,640 2.24%
Frank A. Hulet(2) 129,180 3.82%
C. Wesley Johnson(3) 109,999 3.25%
Lewis Kassis(4) 280,152 8.29%
Robert L. Martin(5) 135,987 4.02%
Charles W. Mullenix(6) 315,548 9.33%
George Pihakis(7) 167,446 4.95%
Ferris S. Ritchey, Jr. 326,870 9.67%
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Name Number of Shares Percent of Class
<S> <C> <C>
David C. Thompson(8) 69,043 2.04%
Ferd F. Weil, Sr.(9) 262,205 7.76%
Lloyd C. Zobrist(10) 153,550 4.54%
All Directors &
Officers 2,121,586 62.8%
</TABLE>
(1) Includes 70,645 shares registered in the name of Margaret Jeanne Frank, his
wife.
(2) Shares registered in the name of Frank and Virginia Hulet.
(3) Shares registered in the name of Johnson Family Revocable Trust.
(4) Shares registered in the name of Lewis and Helen Kassis Trust.
(5) Shares attributed to Mr. Martin are registered in the name of his children.
(6) 240,000 shares attributed to Mr. Mullenix are registered to the Mullenix
Family Partnership. 75,548 shares are registered in the name of Mr.
Mullenix and his wife, Mary Jane Mullenix.
(7) Shares attributed to Mr. Pihakis are registered in the name of his wife,
Dolores Pihakis. Mr. Pihakis disclaims any beneficial ownership of such
shares.
(8) Shares registered in the name of David C. and Patricia M. Thompson.
(9) Shares registered in the name of Ferd and Helen Weil, Sr.
(10) 141,799 Shares registered in the name of WRCL Company, of which Mr. Zobrist
is a principal, and 11,751 shares are registered to Lloyd C. Zobrist,
individually.
In addition to common stock, Consolidare Enterprises, Inc. has outstanding
one additional class of securities, 14.25% Convertible Subordinated Debentures
which are convertible into common shares of Consolidare.
62
<PAGE>
Item 13. Certain Relationships and Related Transactions.
Insuradyne Corporation, a wholly-owned subsidiary of Consolidare
Enterprises, Inc., serves as general agent for the Company, pursuant to a
general agency agreement, which is terminable by either party with 30 days
notice. In such capacity, Insuradyne receives a commission on the first year
commissionable premium on certain of the Company's policies as well as a small
renewal commission on certain other policies. In accordance with the Florida
Insurance Code, a copy of the Company's General Agency Agreement with Insuradyne
Corporation was filed with and approved by the Florida Department of Insurance.
Management of the Company believes that the terms of its General Agency
Agreement with Insuradyne are as favorable to the Company as terms which could
be obtained from independent third parties. During 1995, gross commissions in
the amount of $422,121 were earned by Insuradyne Corporation. At December 31,
1995, the Company owed $243,369 to Insuradyne as a result of commissions earned
by Insuradyne but for which Insuradyne has not yet requested payment.
No Director or officer of the Company or any associates of any director or
officer of the Company was indebted to the Company at December 31, 1995.
The Company continues to be indebted to its parent, Consolidare
Enterprises, Inc., in the amount of $1,000,000, pursuant to a promissory note
dated December, 1988, which bears interest at the annual rate of interest equal
to the Prime Rate (as hereinafter defined) plus 2%, with such interest rate not
to be less than 9% nor in excess of 11%. For purposes of this promissory note,
"Prime Rate" is defined to mean the Prime Rate as announced by Compass Bank,
Birmingham, Alabama, from time to time, as its prime rate (which interest rate
is only a bench mark, is purely discretionary and is not necessarily the best or
lowest rate charged borrowing customers). This promissory note is due on demand
and is payable out of capital surplus in excess of $1,750,000, pursuant to
Florida Statutes 628.401 (1990). Interest and principal can only be repaid upon
the express written approval of the Florida Department of Insurance.
On December 31, 1995, approximately 62.8% of the issued and outstanding
stock of Consolidare Enterprises, Inc. was owned by the directors and executive
officers of the Company. See item 12 - Security Ownership of Certain Beneficial
Owners and Management.
Ferris S. Ritchey, Jr., a Director and a member of the Executive Committee,
is a member of the law firm of Ritchey & Ritchey, P.A., which serves as legal
counsel to the Company on certain matters.
63
<PAGE>
PART IV
Item 14. Financial Statements, Exhibits filed and Reports on Form 8-K.
(a) 1. Financial Statements Page Number
The following financial statements
of Southern Security Life Insurance
Company are included in Part II,
Item 8:
Independent Auditors' Report............ 22
Balance Sheets - December 31,
1995 and 1994........................... 23
Statements of Income - years ended
December 31, 1995, 1994 and 1993........ 25
Statements of Shareholders' Equity - years
ended December 31, 1995, 1994 and 1993.. 26
Statements of Cash Flows - years ended
December 31, 1995, 1994 and 1993........ 27
Notes to Financial Statements........... 29
2. Supplemental Schedules.
Required Financial Data - for the years
ended December 31, 1995, 1994 and 1993 -
included in Part II, Item 8:
Schedule I - Summary of Investments -
Other than Investments in Related
Parties................................. 51
Schedule III - Supplementary Insurance
Information............................. 52
Schedule IV - Reinsurance............... 53
Schedules other than those listed above have been omitted because they are
not applicable or because the required information is included in the financial
statements and notes thereto or in Item 7 -Management's Discussion and Analysis
of Financial Condition and Results of Operations.
64
<PAGE>
3. Exhibits
Exhibit Number Page Number
3. Articles of Incorporation, as
amended, and By-Laws, as amended
(without exhibits) dated September 1994,
incorporated by reference herein from
From Exhibit 3(1) of the Annual Report of
the Company filed on Form 10-K for the
fiscal year ended December 31, 1994..... 76
10. Executive Compensation Agree-
ment between the Company and
George Pihakis (without exhibits)
incorporated by reference herein
from Exhibit 10(B) of the Annual
Report of the Company filed on
Form 10-K for the fiscal year
ended December 31, 1984................. 77
10.A Revolving Financing Agreement between
the Company and the Student Loan
Marketing Association, dated as of
August 19, 1995......................... 78
10.B Reinsurance Agreement between the
Company and United Group Insurance
Company, dated as of December 31, 1992
incorporated by reference herein from
Exhibit 10(B) of the Annual Report of the
Company filed on Form 10-K for the fiscal
year ended December 31, 1992............ 79
10.C Agency Agreement between the Company and
Insuradyne Corporation incorporated by
reference herein from Exhibit 10(C) of the
Annual Report of the Company filed on Form
10-K for the fiscal year ended December 31, 1993 80
11. Statement Re Computation of Net Income per
common share.................................... 81
20. Definitive proxy materials for the Annual
Meeting of Shareholders held July 15, 1995..... 82
(b) Reports on Form 8-K
None.
65
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
By: /s/George Pihakis
George Pihakis
President, Chief Executive
Officer and Director
By: /s/David C. Thompson
David C. Thompson
Executive Vice President
Secretary, Treasurer,
Chief Operating Officer and
Director
Date: April 15, 1996
66
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
By: /s/Samuel F. Brewer
Samuel F. Brewer (Director)
April 15, 1996
67
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
By: /s/Alfred T. Frank
Alfred T. Frank (Director)
April 15, 1996
68
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
By: /s/Frank A. Hulet
Frank A. Hulet (Director)
April 15, 1996
69
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
By: /s/C. Wesley Johnson
C. Wesley Johnson (Director)
April 15, 1996
70
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
By: /s/Robert Lee Martin
Robert Lee Martin (Director)
April 15, 1996
71
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
By: /s/Dr. Charles W. Mullenix
Dr. Charles W. Mullenix (Director)
April 15, 1996
72
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
By: /s/Ferris S. Ritchey, Jr.
Ferris S. Ritchey, Jr. (Director)
April 15, 1996
73
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
By: /s/Ferd F. Weil, Sr.
Ferd F. Weil, Sr. (Director)
April 15, 1996
74
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.
SOUTHERN SECURITY LIFE INSURANCE COMPANY
By: /s/Lloyd C. Zobrist
Lloyd C. Zobrist (Director)
April 15, 1996
75
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
EXHIBIT 3
EXHIBITS FILED WITH ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1994
76
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
EXHIBIT 10
EXHIBITS FILED WITH ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1984
77
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
EXHIBIT 10.A
REVOLVING FINANCING AGREEMENT BETWEEN
THE COMPANY AND THE STUDENT LOAN
MARKETING ASSOCIATION
78
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
EXHIBIT 10.B
REINSURANCE AGREEMENT
BETWEEN THE COMPANY AND
UNITED GROUP INSURANCE COMPANY
EXHIBIT FILED WITH ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1992
79
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
EXHIBIT 10.C
AGENCY AGREEMENT BETWEEN THE
COMPANY AND INSURADYNE CORPORATION
EXHIBIT FILED WITH ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1993
80
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
EXHIBIT 11
COMPUTATION OF NET INCOME
PER COMMON SHARE
1995 1994 1993
Weighted Average
Shares Outstanding 1,907,989 1,907,989 1,844,694
Net Income $1,114,903 $1,013,979 $704,652
Per Share Amount $.58 $.53 $.38
81
<PAGE>
SOUTHERN SECURITY LIFE INSURANCE COMPANY
EXHIBIT 20
DEFINITIVE PROXY MATERIALS FOR THE ANNUAL MEETING
82
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<DEBT-HELD-FOR-SALE> 21,812,096 18,641,197
<DEBT-CARRYING-VALUE> 15,165,395 12,816,337
<DEBT-MARKET-VALUE> 15,494,540 12,474,924
<EQUITIES> 1,715,386 1,380,761
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 50,186,208 43,612,075
<CASH> 406,752 638,079
<RECOVER-REINSURE> 514,341 323,184
<DEFERRED-ACQUISITION> 18,145,111 20,104,624
<TOTAL-ASSETS> 81,872,350 77,185,070
<POLICY-LOSSES> 1,050,498 1,041,645
<UNEARNED-PREMIUMS> 9,116,890 10,416,064
<POLICY-OTHER> 191,955 297,376
<POLICY-HOLDER-FUNDS> 57,444 55,375
<NOTES-PAYABLE> 2,400,553 1,891,823
0 0
0 0
<COMMON> 1,907,989 1,907,989
<OTHER-SE> 4,011,519 4,011,519
<TOTAL-LIABILITY-AND-EQUITY> 81,872,350 77,185,070
8,158,938 9,299,789
<INVESTMENT-INCOME> 2,998,875 2,750,771
<INVESTMENT-GAINS> 60,237 60,732
<OTHER-INCOME> 0 0
<BENEFITS> 4,048,125 4,048,221
<UNDERWRITING-AMORTIZATION> 3,069,742 3,242,706
<UNDERWRITING-OTHER> 2,735,280 3,186,386
<INCOME-PRETAX> 1,274,903 1,543,979
<INCOME-TAX> 160,000 530,000
<INCOME-CONTINUING> 1,114,903 1,013,979
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,114,903 1,013,979
<EPS-PRIMARY> .58 .53
<EPS-DILUTED> .58 .53
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
